hedge fund wisdom · consensus buy among hedge funds in q3. visa (v): 24% of funds reduced their v...
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hedge fund wisdom table of contents
p.06 Baupost Group hedge fund portfolios:
Q4 2012
a quarterly publication by marketfolly.com
Q4 2012 www.hedgefundwisdom.com
Each quarter, hedge funds and institutional money managers are required to disclose their portfolios to the Securities & Exchange Commission (SEC) via 13F filing.
These filings disclose long U.S. equity positions, American
Depositary Receipts (ADRs), stock options (puts/calls), warrants, as well as convertible notes. They do not disclose positions in other asset classes (such as commodities, currencies, or debt). They also do not reveal positions in international markets, short sales or cash positions.
Hedge Fund Wisdom, a quarterly publication by
MarketFolly.com, aggregates, updates, and analyzes the latest portfolios of top investment managers. The positions in this issue are hedge fund fourth quarter holdings as of December 31st, 2012.
Background:
In This Issue:
Next Page: Brand New Consensus Buy/Sell Section
- Portfolio updates on 25 prominent hedge fund managers
- Investment thesis summaries written by hedge fund analysts that examine 3 stocks hedge funds were buying
- Expert commentary & historical context on each fund’s portfolio moves
- Brand new section: Consensus buy & sell lists revealing the stocks that were most frequently traded by these managers
- To navigate the newsletter, simply click on a page number in
the Table of Contents column on the right to go to that page
p.08 Berkshire Hathaway
p.10 Greenlight Capital
p.12 Lone Pine Capital
p.15 Appaloosa Management
p.18 Pershing Square Capital
p.20 Maverick Capital
p.23 Third Point
p.26 Blue Ridge Capital
p.28 Paulson & Co
p.31 Tiger Management
p.33 Soros Fund Management
p.36 Bridger Management
p.39 Omega Advisors
p.42 Coatue Management
p.45 Fairholme Capital
p.47 Tiger Global
p.50 Passport Capital
p.57 Perry Capital
p.59 Glenview Capital
p.62 Viking Global
p.65 Farallon Capital
p.68 Icahn Capital
equity analysis p.75 Capital One (COF)
p.78 Herbalife (HLF)
p.82 Spirit AeroSystems (SPR)
p.70 JANA Partners
p.72 Pennant Capital
consensus buy/sell lists: p.02 Most popular trades
Quote of the Quarter:
“So much of the driver of any asset class’s returns is based on how events actually transpire relative to expectations. So there’s a
certain discounted growth rate in equities.”
~ Ray Dalio, Bridgewater Associates
2 Q4 2012 www.hedgefundwisdom.com
Hedge Fund Consensus Buy List
Consensus Increase List
Consensus New Positions
This is a consensus list of the stocks that hedge funds in this issue started brand new positions in:
Workday (WDAY): 20% of funds in this issue disclosed new WDAY stakes: Blue Ridge Capital, Lone Pine Capital, Tiger Global, Coatue Management, and Passport Capital. The company completed its initial public offering (IPO) in the fourth quarter. Given that the funds covered are some of the most prominent in the industry, it seems likely that they participated in the IPO rather than buying shares in the open market, but there’s no way to know for sure. VeriSign (VRSN): 16% of funds disclosed new VRSN stakes: Berkshire Hathaway, JANA Partners, Tiger Global, and Soros Fund. This is the second time in the past three quarters that VRSN has been a consensus buy among hedge funds profiled herein (Q1 2012 and Q2 2012). Funds took advantage of a dip in shares after the Department of Justice nixed a price increase in VRSN’s contract renewal. ADT (ADT): 16% of funds disclosed new ADT stakes: JANA Partners, Passport Capital, Soros Fund, and Tiger Management. This company completed its spin-off from the Tyco conglomerate in the fourth quarter. Some funds owned Tyco pre-split and received shares this way, while others bought the newly traded shares in the open market. Herbalife (HLF): 16% of funds disclosed new HLF stakes: Third Point, Lone Pine Capital, and Coatue Management. Bill Ackman (Pershing Square Capital) gave a presentation on why investors should short HLF and shares plunged. Many investors took advantage of this dip to initiate a position. HLF is featured in the equity analysis section later in this issue. Freeport McMoran (FCX): 16% of funds disclosed new FCX stakes: Paulson & Co, Omega Advisors, Appaloosa Management, and Farallon Capital. During the quarter, the company announced it was buying McMoran Exploration (MMR) and Plains Exploration & Production (PXP). Shares took a nosedive, likely prompting many hedge funds to hit the bid.
3 Q4 2012 www.hedgefundwisdom.com
Hedge Fund Consensus Increase List
Consensus Sell List
Consensus Increased Positions
This is a consensus list of the stocks that hedge funds in this issue already owned but bought more shares of: HCA( HCA): 16% of funds in this issue added to pre-existing HCA stakes: Bridger Management, Blue Ridge Capital, Glenview Capital, and Tiger Management. President Obama was re-elected during the quarter, securing Obamacare’s near-term future and potentially boosting the outlook for for-profit hospitals like HCA. Express Scripts (ESRX): 16% of funds added to pre-existing ESRX stakes: Maverick Capital, Farallon Capital, Omega Advisors, and Perry Capital. ESRX was also originally a consensus buy in Q1 of 2012 as well. Shares dropped in the quarter after the company’s earnings report as some investors worried about margins. The company has been integrating its acquisition of Medco Health. Equinix (EQIX): 16% of funds added to pre-existing EQIX stakes: Lone Pine Capital, Blue Ridge Capital, Viking Global, and Farallon Capital. EQIX was featured in the equity analysis section of the Q1 2012 issue of Hedge Fund Wisdom and shares are up almost 43% since then. Citigroup (C): 16% of funds added to pre-existing C stakes: Soros Fund, Viking Global, Pennant Capital, and Omega Advisors. Shares steadily climbed higher throughout the fourth quarter as confidence in some financials slowly returns.
4 Q4 2012 www.hedgefundwisdom.com
Hedge Fund Consensus Sell List
Consensus Decrease List
Consensus Sold Positions
This is a consensus list of the stocks that hedge funds in this issue sold completely out of:
Apple (AAPL): 36% of funds in this issue completely exited their AAPL stakes: Viking Global, Lone Pine Capital, Third Point, Omega Advisors, JANA Partners, Farallon Capital, Bridger Management, and Passport Capital. AAPL also appears on the next page on the “consensus decrease” list. So there is another slew of managers that sold some of their AAPL shares but still retain a position. Molycorp (MCP): 16% of funds completely exited their MCP stakes: Coatue Management, Farallon Capital, Soros Fund, and Passport Capital. SPDR S&P 500 (SPY): 12% of funds completely exited their SPY stakes: Perry Capital, Omega Advisors, and Passport Capital. These funds were likely using this exchange-traded index fund as a way to run increased equity exposure. Tyco (TYC): 12% of funds completely exited their TYC stakes: Glenview Capital, Soros Fund, and Maverick Capital. This one should probably have an asterisk by it because the company completed its split-up into a few different companies: ADT (ADT), Pentair (PNR), and Tyco (TYC). Some funds bought for the spin-off catalyst that has now passed. But as you saw a few pages earlier on the “consensus buy” list, the ADT portion of the spin-off was in high demand. The remaining TYC business consists of their fire and security segment. Qualcomm (QCOM): 12% of funds completely exited their QCOM stakes: Farallon Capital, Coatue Management, and Soros Fund.
5 Q4 2012 www.hedgefundwisdom.com
Hedge Fund Consensus Decrease List
Next: Hedge Fund Portfolios (Baupost Group)
Consensus Decreased Positions
This is a consensus list of the stocks that hedge funds in this issue reduced their position sizes in:
Google (GOOG): 32% of funds in this issue reduced their GOOG position size: Maverick Capital, Passport Capital, Bridger Management, Appaloosa Management, Tiger Management, Coatue Management, Soros Fund, and Omega Advisors. GOOG hit new highs (at the time) and then sold off during the quarter. Since then, they’ve gone on to hit all-time highs in 2013. American International Group (AIG): 28% of funds reduced their AIG position size: Soros Fund, Third Point, Appaloosa Management, Viking Global, Fairholme Capital, Glenview Capital, and Omega Advisors. AIG was featured in the equity analysis section of the Q2 2012 issue of Hedge Fund Wisdom and it was a consensus buy among hedge funds in Q3. Visa (V): 24% of funds reduced their V position size: Viking Global, Tiger Global, Lone Pine Capital, Maverick Capital, Farallon Capital, and Tiger Management. Shares of V have steadily climbed higher so this could potentially be a case of simply locking in some profits or concerns about consumer spending. Apple (AAPL): 20% of funds reduced their AAPL position size: Coatue Management, Tiger Global, Blue Ridge Capital, Pennant Capital, and Tiger Management. As you saw on the page prior, AAPL was also on the “consensus sell” list as many other hedge funds completely liquidated their positions. Qualcomm (QCOM): 20% of funds reduced their QCOM position size: Maverick Capital, Pennant Capital, Lone Pine Capital, Tiger Management, and Omega Advisors. QCOM was also on the “consensus sell” list as other managers completely exited their stakes.
6 Q4 2012 www.hedgefundwisdom.com
Baupost Group joined the legion of other hedge funds in American International Group (AIG) by starting a new position in the stock. The event-driven path on this name has been outlined in the Q2 2012 issue of Hedge Fund Wisdom, so be sure to login and have a look if you missed it. Apart from this, the other major takeaway from Seth Klarman’s equity portfolio is that he completely exited shares of Hewlett Packard (HPQ). The company is clearly a mess when even noted value investors throw in the towel at cheap valuation. In the tech sector, Baupost also reduced its stake in Oracle by 22% during the quarter.
In other minor portfolio moves, Baupost Group seemed to have swapped a lot of positions. For instance, they sold off around 38% of their stake in News Corp NWSA shares and bought 34% more of the NWS share class. Additionally, Baupost sold their Microsoft common stock, but added Microsoft calls instead. Turning to their gold mining plays, they seem to continue to favor NovaGold Resources (NG) as they continued to buy as shares slid (something they’ve done for many consecutive quarters). However, they almost chopped their stake in Allied Nevada Gold (ANV) in half.
Seth Klarman’s year-end letter to investors had some excellent quotes as usual. Here’s what he had to say: “As investors have become accustomed
to sputtering economies and massive government intervention, episodic "risk-on" and "risk-off" behaviors drive the capital markets. Unexpected bad news means risk off. A stopgap solution to the crisis du jour is offered -- i.e., a bailout, a rescue, a Band-Aid deal, QE(n) -- and risk on resumes. We have been on a roller-coaster ride for the last four years and counting, with no meaningful recovery, no feasible solutions, and ineffectual leadership. Investors conditioned to the short-term trading mentality are increasingly ill prepared for policy changes. What will happen when the Fed declares, as it someday must, that the era of low interest rates is at an end? What if governments holding trillions of dollars of sovereign debt and other securities stop buying and begin to sell? Or if another serious crisis -- economic, political, international -- materializes and governments have insufficient ammunition to intervene? The content, though not the timing, of the next chapter in market history is quite predictable. Few will say they saw it coming, though, in fact, everyone could have seen it if they had only chosen to look.” Klarman then also went on to write, “We make no heroic assumptions in our analysis, hoping, instead, that by compounding multiple conservative assumptions, we will create such a substantial margin of safety that a lot can go wrong without impairing our capital much or even at all.”
In activity since the close of the quarter, Baupost has increased its Idenix Pharmaceuticals (IDIX) position even further.
Seth Klarman
Graduated from Harvard Business
School & regarded as one of the best investors of all time
View Seth Klarman’s
Recommended Reading List
View Baupost Group’s Updated Portfolio on the Next Page
Key Takeaways New Posit ions: AIG (AIG) Microsoft (MSFT) Calls Sold Out: Microsoft (MSFT) Hewlett Packard (HPQ) Sycamore Networks (SCMR)
Baupost Group
7
Baupost Group
Next Page: Berkshire Hathaway
Fourth Quarter 2012 Portfolio:
Q4 2012 www.hedgefundwisdom.com
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 BP plc BP
14.69% Cut -3% $455,040 10,927,958 2 ViaSat Inc. VSAT
13.81% Added 2% $427,900 11,000,000
3 Oracle Corp. ORCL
11.23% Cut -23% $347,997 10,444,085 4 News Corp. NWS
11.03% Added 35% $341,661 13,020,612
5 Theravance Inc. THRX
9.73% Unchanged $301,437 13,553,800 6 AmericanInternationalGroup AIG
7.98% New $247,100 7,000,000
7 News Corp. NWSA
6.63% Cut -38% $205,251 8,045,888 8 Genworth Financial Inc. GNW
3.64% Unchanged $112,650 15,000,000
9 Idenix Pharmaceuticals Inc. IDIX
3.24% Added 73% $100,418 20,704,700 10 NovaGold Resources Inc. NG
3.16% Added 3% $97,814 21,688,300
11 Allied Nevada Gold Corp. ANV
2.78% Cut -44% $85,977 2,853,550 12 Rovi Corporation ROVI
2.06% Unchanged $63,803 4,134,974
13 Theravance Inc. NOTE THRX
1.81% Unchanged $56,100 51,000,000 14 Microsoft Corporation MSFT CALL 1.72% New $53,419 2,000,000 15 AVEO Pharmaceuticals, Inc. AVEO
1.27% Cut -4% $39,468 4,902,850
16 Enzon Pharmaceuticals Inc. ENZN
1.12% Cut -13% $34,775 7,850,368 17 Syneron Medical Ltd. ELOS
1.12% Unchanged $34,680 4,000,000
18 Alliance One International AOI
1.03% Unchanged $31,984 8,786,700 19 Central Pacific Financial CPF
0.91% Unchanged $28,062 1,800,000
20 Ituran Location & Control ITRN
0.74% Unchanged $22,874 1,685,666 21 NOVACOPPER INC NCQ
0.29% Added 9% $9,060 5,005,298
22 Sycamore Networks Inc. SCMR
Sold 23 Microsoft Corporation MSFT
Sold
24 Hewlett-Packard HPQ
Sold
8 Q4 2012 www.hedgefundwisdom.com
The past few quarters at Berkshire Hathaway have seen a higher than usual amount of portfolio activity and you have Warren Buffett’s two new portfolio managers to thank for that. Ted Weschler and Todd Combs are typically responsible for investments made that are less than $1 billion, while Buffett makes the really big bets. It’s worth highlighting, however, that two bets that are assumedly attributed to Weschler and Combs have over time grown to become quite large positions. During the fourth quarter, they added to their DirecTV (DTV) position by 15% and Davita (DVA) stake by 33%. These two holdings are now worth $1.7 billion and $1.5 billion respectively. As highlighted in the past two issues of Hedge Fund Wisdom, Ted Weschler held shares of DVA at his previous hedge fund and seems to be leading the charge with this investment, buying tons of shares between the $108-112 levels.
In other portfolio activity from the quarter, Berkshire added significantly to its position in General Motors (GM), boosting the amount of shares owned by 66%. They also increased their position size in Precision Castparts (PCP) to the tune of 58%. In the quarter prior, Berkshire also owned shares of the old Kraft entity (former ticker KFT). The company split up into Kraft Foods (new ticker KRFT) and Mondelez (new ticker MDLZ). KRFT houses the company’s North American grocery segment and seems to be more geared toward income investors while MDLZ houses the international snacks company, which is more of a
growth business. Berkshire’s latest portfolio shows that they decided to hold on to both companies as of quarter end. The split took place at the beginning of October, so it will be interesting to see if Buffett’s team eventually favors one business over the other. Right now, their stake in MDLZ ($326 million) is considerably larger than their KRFT stake ($75 million). The KRFT position appears as ‘new’ on the next page, but just keep in mind that is a function of the spin-off and new tickers being created. They received these shares from the spin.
There were two brand new positions initiated by the younger Berkshire portfolio managers: Archer Daniels Midland (ADM) and Verisign (VRSN). Although there’s no way to know for sure, it seems quite plausible that their PM’s took advantage of the dip in VRSN shares after the government nixed the company’s proposal to raise prices on their contract with ICANN. Shares have since rebounded nicely from those levels. Lone Pine Capital’s Steve Mandel has been bullish on VRSN, even with the government’s ruling, as he feels the company can still grow at a steady rate. VRSN was listed earlier as a hedge fund consensus buy in the quarter.
In news since quarter close, Buffett took part in a deal with 3G Capital to buy Heinz. Berkshire will not have an operating role in the company, as it looks instead to be a place to park cash.
Warren Buffett
Mentored by Benjamin Graham in the ways of value investing
View Buffett’s Recommended
Reading List
Berkshire Hathaway
View Berkshire Hathaway’s Updated Portfolio on the Next Page
Key Takeaways New Posit ions: Archer Daniels Midland (ADM) Verisign (VRSN) Sold Out: None
9
Berkshire Hathaway Fourth Quarter 2012 Portfolio:
Next Page: Greenlight Capital
Q4 2012 www.hedgefundwisdom.com
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 Wells Fargo & Company WFC
19.96% Added 4% $15,034,342 439,857,861 2 The Coca-Cola Company KO
19.25% Unchanged $14,500,000 400,000,000
3 IBM IBM
17.32% Added 1% $13,047,521 68,115,484 4 American Express AXP
11.57% Unchanged $8,714,584 151,610,700
5 Procter & Gamble Co. PG
4.76% Unchanged $3,584,123 52,793,078 6 Wal-Mart Stores Inc. WMT
4.30% Added 2% $3,241,007 47,501,182
7 U.S. Bancorp USB
2.60% Unchanged $1,956,791 61,264,601 8 DIRECTV DTV
2.27% Added 15% $1,707,321 34,037,500
9 DaVita, Inc. DVA
2.00% Added 33% $1,504,085 13,607,935 10 PHILLIPS 66 PSX
1.92% Unchanged $1,442,404 27,163,918
11 Moody's Corp. MCO
1.90% Unchanged $1,429,855 28,415,250 12 ConocoPhillips COP
1.86% Unchanged $1,398,945 24,123,911
13 General Motors GM
0.96% Added 67% $720,750 25,000,000 14 Liberty Media LMCA
0.87% Added 2% $652,248 5,622,340
15 The Washington Post WPO
0.84% Unchanged $630,997 1,727,765 16 M&T Bank Corp. MTB
0.70% Unchanged $529,969 5,382,040
17 Bank of NewYorkMellon BK
0.67% Unchanged $504,592 19,633,915 18 USG Corp. USG
0.64% Unchanged $479,216 17,072,192
19 Costco Wholesale COST
0.57% Unchanged $427,833 4,333,363 20 Viacom Inc 6.85% Pfd VIAB
0.53% Unchanged $401,204 7,607,200
21 Precision Castparts Corp. PCP
0.50% Added 58% $374,547 1,977,336 22 National Oilwell Varco NOV
0.48% Added 26% $361,899 5,294,800
23 Deere & Company DE
0.46% Unchanged $343,845 3,978,767 24 Mondelez International MDLZ
0.43% Cut -58% $326,831 12,840,450
25 General Dynamics Corp. GD
0.36% Unchanged $268,568 3,877,122 26 WABCO Holdings Inc. WBC
0.35% Added 155% $265,448 4,071,925
27 Visa, Inc. V
0.31% Unchanged $235,776 1,555,459 28 Torchmark Corp. TMK
0.29% Unchanged $218,865 4,235,818
29 Sanofi-Aventis SNY
0.26% Unchanged $192,537 4,063,675 30 Mastercard Incorporated MA
0.26% Unchanged $198,968 405,000
31 Archer Daniels Midland ADM
0.22% New $163,151 5,956,600 32 VeriSign Inc. VRSN
0.19% New $143,079 3,685,700
33 Verisk Analytics, Inc. VRSK
0.11% Unchanged $79,688 1,563,434 34 Kraft Foods Group, Inc. KRFT
0.10% New $75,877 1,668,714
35 GlaxoSmithKline plc GSK
0.09% Unchanged $65,661 1,510,500 36 Gannett Co., Inc. GCI
0.04% Unchanged $31,342 1,740,231
37 Johnson & Johnson JNJ
0.03% Cut -34% $22,930 327,100 38 Media General, Inc. MEG
0.03% Unchanged $19,979 4,646,220
39 General Electric Co. GE
0.02% Unchanged $12,361 588,900 40 United Parcel Service UPS
0.01% Unchanged $4,380 59,400
41 Lee Enterprises Inc. LEE
0.00% Cut -92% $101 88,863
10 Q4 2012 www.hedgefundwisdom.com
While a plethora of hedge fund managers were exiting shares of Apple (AAPL) in the fourth quarter, David Einhorn stepped in to buy common stock and a new position in call options. Greenlight’s original cost basis was around $248 per share so even with AAPL’s recent fall, he’s still up on his original position. However, shares have continued to fall since his recent purchase. Einhorn has been pushing Apple management to adopt more shareholder friendly capital allocation strategies. In particular, he’s been pushing for the company to issue a perpetual preferred security. Greenlight has called for AAPL shareholders to vote against proposal 2 at the company’s meeting. While AAPL has heard Einhorn out, it seems somewhat unlikely that his idea will come to fruition as the company already shot down the idea once last year.
Vodafone (VOD) is listed as a ‘new position’ on the next page, but longtime readers will know that Einhorn has actually owned VOD for quite some time. He’s owned the UK shares long-term (which the SEC does not require disclosure of). His purchase of the
American Depository Receipt (ADR) shares traded in the US is a brand new development. So the takeaway here is that he was adding to his stake, but it is by no means a new position, as he’s owned the company for some time via VOD’s domestic UK shares. In fact, Vodafone is one of his top five largest positions.
Greenlight outlined their thesis on this name in their fourth quarter letter to investors: “It appears that the market is placing no value on VOD’s 45% stake in Verizon Wireless … For years, Verizon used its control to try to starve VOD by refusing to allow Verizon Wireless to pay dividends … Excluding any contribution from Verizon Wireless, VOD stock pays a 7% dividend and trades at less than 12x cash earnings – roughly in line with other large European telecom companies. Meanwhile, VOD has never become dependent on Verizon Wireless distributions. Given the huge valuation disparity between what the market thinks Verizon Wireless is worth to Verizon (at least a couple hundred billion dollars) and what it ascribes to VOD (about zero), combined with Verizon’s increasing dependence on Verizon Wireless, it wouldn’t surprise us if Verizon decided to buy all of VOD to gain full ownership control of Verizon Wirelesss.” Shares of VOD have continued to sell off thus far in 2013, so it will be interesting to see if Einhorn adds to his position further.
Greenlight returned 7.9% in 2012 and has seen 19.4% annualized returns. Einhorn’s fourth quarter letter to investors revealed that the hedge fund had covered their short position in Pitney Bowes (PBI), labeling the company a ‘metling ice cube.’ Many other hedgies have been short this name due to the secular decline of US postal mail volumes.
David Einhorn
Has returned 19.4% annualized
Predicted & profited from the demise of Lehman Brothers
Author of Fooling Some of the
People All of the Time
Greenlight Capital
Key Takeaways New Posit ions: Apple (AAPL) Calls Google (GOOG) Vodafone (VOD) ~ see commentary Western Digital (WDC) Sold Out: Wellpoint (WLP) Genworth (GNW) Liberty Media (LMCA) Knight Capital (KCG) Humana (HUM) Huntington Ingalls Industries (HII)
View Greenlight Capital’s Updated Portfolio on the Next Page
11
Greenlight Capital Fourth Quarter 2012 Portfolio:
Q4 2012 www.hedgefundwisdom.com
Next Page: Lone Pine Capital
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 Apple Inc. AAPL
10.90% Added 20% $695,549 1,307,006 2 General Motors GM
9.56% Cut -2% $610,390 21,172,063
3 CIGNA Corporation CI
6.86% Added 15% $437,624 8,186,000 4 Marvell Technology MRVL
5.89% Added 58% $376,086 51,802,443
5 Computer Sciences Corp CSC
4.84% Added 12% $309,035 7,716,250 6 DELPHI AUTOMOTIVE PLC DLPH
4.79% Cut -2% $305,581 7,989,061
7 Aetna Inc. AET
4.72% Added 48% $301,395 6,508,215 8 Microsoft Corporation MSFT
4.53% Added 41% $289,256 10,829,544
9 GoldMiners ETF GDX
4.36% Unchanged $278,571 6,004,971 10 NCR Corp. NCR
4.10% Added 24% $261,420 10,259,790
11 Seagate Technology PLC STX
3.99% Cut -50% $254,643 8,370,896 12 Ensco plc ESV
3.53% Unchanged $225,008 3,795,665
13 CBS CORP CL B CBS
3.21% Added 24% $204,659 5,378,681 14 Virgin Media, Inc. VMED
2.83% Unchanged $180,810 4,920,000
15 Xerox Corp. XRX
2.78% Unchanged $177,302 25,997,417 16 Aspen Insurance AHL
2.47% Added 22% $157,666 4,914,782
17 Apple Inc. AAPL CALL 2.29% New $146,348 275,000 18 DST Systems Inc. DST
2.13% Added 12% $136,047 2,245,000
19 Einstein Noah Restaurant BAGL
2.05% Unchanged $131,056 10,733,469 20 Sprint Nextel Corp. S
1.91% Cut -18% $121,833 21,487,358
21 Babcock & Wilcox BWC
1.67% Added 372% $106,341 4,058,818 22 Yahoo! Inc. YHOO
1.48% Cut -6% $94,724 4,760,000
23 Legg Mason Inc. LM
1.36% Unchanged $86,648 3,368,900 24 OAKTREE CAPITAL OAK
1.32% Unchanged $84,239 1,851,812
25 Barrick Gold Corp ABX
1.08% Unchanged $68,882 1,967,500 26 NVR Inc. NVR
0.81% Cut -12% $51,708 56,205
27 Google Inc. GOOG
0.70% New $44,565 63,000 28 Vodafone Group plc VOD
0.63% New $40,304 1,600,000
29 Coventry Health Care CVH
0.58% Cut -71% $37,061 826,700 30 STATE BANK FINANCIAL STBZ
0.52% Unchanged $33,348 2,100,000
31 AECOM Technology ACM
0.44% Added 50% $27,922 1,173,147 32 Western Digital Corp. WDC
0.40% New $25,494 600,000
33 Fifth Street Finance Corp. FSC
0.33% Unchanged $20,826 1,998,692 34 Republic Airways Holdings RJET
0.30% Unchanged $19,385 3,412,800
35 Chipotle Mexican Grill CMG PUT 0.23% Unchanged $14,873 50,000 36 Tessera Technologies TSRA
0.18% Unchanged $11,442 695,580
37 SYMMETRICOM, INC. SYMM
0.15% Unchanged $9,866 1,709,846 38 BioFuel Energy Corp. BIOF
0.08% Unchanged $5,254 1,427,819
39 Liberty Media LMCA
Sold 40 Humana Inc. HUM
Sold
41 Knight Capital NOTE KCG
Sold 42 Genworth Financial Inc. GNW
Sold
43 Huntington Ingalls Industries HII
Sold 44 WellPoint Inc. WLP
Sold
12 Q4 2012 www.hedgefundwisdom.com
Lone Pine was quite active with their portfolio in the fourth quarter, headlined by a few major moves. First, they completely sold out of Apple (AAPL), one of their previous sizable stakes. Priceline.com (PCLN) and Google (GOOG) remain their two largest US listed longs, and they were out buying even more shares of each during the quarter (especially GOOG). Steve Mandel’s firm had an appetite for shares of dollar stores such as Dollar General (DG) and Dollar Tree (DLTR), acquiring increased stakes in each. Their DG position is slightly larger at $588 million (compared to $478 million for DLTR). Based on the 13G that Lone
Pine also filed with the SEC in December, it appears as though Lone Pine was buying DLTR around the $38-39 level, not much lower from where shares currently trade. Additionally, DG shares have lingered around similar areas Lone Pine was theoretically buying at.
Last quarter’s issue of Hedge Fund Wisdom highlighted Mandel’s thesis on Versign (VRSN). He outlined how that even if the company wasn’t granted price increases on its contracts, that downside was still limited. Well, the government indeed did not allow a price increase and shares sold off for a few days. While some hedge fund managers exited their stakes on this news, the majority of hedgies covered in this newsletter were out buying, including Lone Pine. Mandel added to his position by around 56%.
Rounding out the list of additional notable buys, Lone Pine joined many other funds in adding a stake in Facebook (FB), a consensus buy among hedgies in the fourth quarter. Realogy (RLGY) was another name many hedgies disclosed new stakes in, as the company completed its initial public offering (IPO).
Since the close of the fourth quarter, Lone Pine has continued to add to its position in Charter Communications (CHTR). Even after their sizable purchases in Q4 (boosting their stake by over 1,300%), Lone Pine acquired even more shares and now has a 7.1% ownership stake in the company with 7,216,285 shares as of January 24th.
In international activity, Lone Pine reduced its Esprit (HK:330) stake down to 10.88% of the company.
Stephen Mandel
Seeks to identify companies with good management teams that are
trading below intrinsic value
Previously a consumer analyst at Julian Robertson’s hedge fund Tiger
Management
Lone Pine Capital
Key Takeaways
New Posit ions: Facebook (FB) Capital One (COF) Mead Johnson Nutrition (MJN) American International Group (AIG) Intuitive Surgical (ISRG) Realogy (RLGY) ~ IPO SemGroup (SEMX) Herbalife (HLF) Calls Pactera PACT) Informatica (INFA) Workday (WDAY) ~ IPO Sold Out: Apple (AAPL) Schlumberger (SLB) SPDR Gold Trust (GLD) Express Scripts (ESRX) Liberty Global (LBTYA) Autozone (AZO) Tractor Supply (TSCO) Anheuser Busch InBev (BUD) Dunkin Brands Group (DNKN) Sensata Technologies (ST)
View Lone Pine Capital’s Updated Portfolio on the Next Page
13
Lone Pine Capital Fourth Quarter 2012 Portfolio:
Continued on next page…
Q4 2012 www.hedgefundwisdom.com
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 Priceline.com Inc PCLN
6.89% Added 25% $1,098,700 1,770,983 2 Google Inc. GOOG
6.89% Added 45% $1,098,613 1,553,073
3 Cognizant Technology CTSH
5.06% Added 3% $806,247 10,912,591 4 Polo Ralph Lauren Corp. RL
3.70% Cut -9% $590,362 3,937,846
5 Dollar General Corp DG
3.69% Added 61% $588,328 13,343,793 6 Equinix, Inc. EQIX
3.62% Added 34% $576,233 2,794,535
7 Gap Inc. GPS
3.61% Added 13% $575,077 18,526,965 8 VeriSign Inc. VRSN
3.59% Added 56% $572,513 14,747,890
9 KINDER MORGAN KMI
3.33% Cut -15% $530,988 15,029,382 10 Monsanto Co. MON
3.18% Cut -15% $507,164 5,358,310
11 DOLLAR TREE STORES DLTR
3.00% Added 203% $478,798 11,804,692 12 MICHAEL KORS KORS
2.89% Added 3% $460,663 9,027,295
13 eBay Inc. EBAY
2.73% Cut -32% $435,451 8,538,639 14 News Corp. NWSA
2.71% Added 21% $431,870 16,929,453
15 Ulta Salon ULTA
2.61% Added 27% $416,161 4,235,300 16 QUALCOMM Inc QCOM
2.53% Cut -5% $402,993 6,514,637
17 TransDigm Group TDG
2.49% Cut -16% $397,405 2,914,384 18 Lululemon Athletica LULU
2.31% Added 1% $368,220 4,830,386
19 Charter Communications CHTR
2.30% Added 1368% $366,561 4,807,983 20 Visa, Inc. V
2.14% Cut -23% $340,652 2,247,340
21 Wyndham Worldwide WYN
1.98% Cut 0% $315,616 5,931,525 22 Facebook, Inc. FB
1.83% New $290,908 10,928,300
23 TripAdvisor Inc TRIP
1.73% Added 14% $275,295 6,567,153 24 Walt Disney Co. DIS
1.67% Cut -43% $265,552 5,333,435
25 Capital One COF
1.61% New $256,830 4,433,450 26 Oceaneering International OII
1.61% Cut -6% $257,075 4,779,243
27 AmericanInternationalGroup AIG
1.55% New $246,874 6,993,600 28 Mead Johnson Nutrition MJN
1.55% New $246,992 3,748,549
29 B/E AEROSPACE BEAV
1.49% Cut -3% $237,708 4,811,906 30 WABCO Holdings Inc. WBC
1.44% Unchanged $229,140 3,514,954
31 JB Hunt Transport Services JBHT
1.41% Cut -1% $224,211 3,754,994 32 Kinder Morgan Warrants KMIIV
1.40% Added 9% $223,772 59,198,984
33 DaVita, Inc. DVA
1.38% Cut -35% $219,900 1,989,505 34 Crown Castle International CCI
1.31% Cut -12% $208,023 2,882,801
35 Intuitive Surgical, Inc. ISRG
1.25% New $199,753 407,352 36 O'Reilly Automotive Inc. ORLY
1.21% Added 42% $193,549 2,164,498
37 Colfax Corporation CFX
0.88% Added 60% $139,949 3,468,370 38 GRIFOLS, S.A. GRFS
0.70% Added 1823% $112,220 4,437,327
39 REALOGY HOLDINGS RLGY
0.64% New $101,900 2,428,511 40 SEMGROUP CORP A SEMX
0.53% New $84,918 2,172,935
41 Herbalife Ltd. HLF CALL 0.48% New $76,750 2,330,000 42 QUALCOMM Inc QCOM CALL 0.40% Unchanged $64,334 1,040,000 43 Accretive Health, Inc. AH
0.39% Cut -43% $61,653 5,333,281
44 PACTERA TECH PACT
0.38% New $60,484 7,617,690 45 Informatica Corporation INFA
0.36% New $56,773 1,872,449
14
Next Page: Appaloosa Management
Fourth Quarter 2012 Portfolio: …Continued
Lone Pine Capital
Q4 2012 www.hedgefundwisdom.com
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
46 WORKDAY, INC. WDAY
0.34% New $53,437 980,494 47 Sears Holdings Corp SHLD PUT 0.33% Unchanged $52,672 1,273,500 48 Canadian Pacific Railway CP
0.23% New $36,227 356,494
49 NETEASE INC NTES
0.20% Cut -88% $32,008 752,604 50 Frontier Comm FTR PUT 0.15% Unchanged $23,540 5,500,000 51 ISOFTSTONE HOLDINGS ISS
0.14% Unchanged $22,381 5,253,739
52 China Lodging Group HTHT
0.14% Cut -12% $21,876 1,283,071 53 Sensata Technologies ST
Sold
54 Anheuser-Busch InBev BUD
Sold 55 US Natural Gas Fund LP UNG PUT
Sold
56 CenturyLink, Inc. CTL PUT
Sold 57 Tractor Supply Company TSCO
Sold
58 DUNKIN' BRANDS DNKN
Sold 59 VanceInfo Tech VIT
Sold
60 Schlumberger Limited SLB
Sold 61 Intel Corporation INTC PUT
Sold
62 Liberty Global Inc. LBTYA
Sold 63 SPDR Gold Shares GLD
Sold
64 Apple Inc. AAPL
Sold 65 AutoZone Inc. AZO
Sold
66 Express Scripts Inc. ESRX
Sold
15
Key Takeaways
New Posit ions: HCA (HCA) Metlife (MET) Transocean (RIG) Weatherford (WFT) Noble (NE) Ensco (ESV) Sold Out: Marvell Technology (MRVL) Lam Research (LRCX)
View Appaloosa Management’s Updated Portfolio on the Next Page
David Tepper gave two rare interviews (one in December and one in January) where he shared how he’s viewing this market. He sees “a lot” of upside in equity markets for a few different reasons. First, he says there’s a “pretty good economy, growing 2% give or take” with tailwinds in housing and autos. Second, he pointed out how the Federal Reserve is focused on unemployment. Third, he thinks Europe’s situation is not as bad as others fear mainly because European Central Bank President Mario Draghi can lower interest rates really whenever he wants to, something Tepper feels many others didn’t really pay attention to. As such, he says you have “a series of puts over in Europe” via central bank action if needed.
Tepper points out that there’s a 12-13 handle on the S&P, noting that, “it’s cheap relative to everything, it’s the only market that hasn’t really rose to new heights.” He made these comments in December and the market has obviously rallied since then. But in his interview in January, Tepper reiterated his bullish stance, pointing toward retail investors (and more importantly) pensions that are incredibly underweight equities. So he feels there will be a shift into the asset class, something Bridgewater Associates’ Ray Dalio has also
David Tepper
Has compounded 30% for investors over 17 years
Profiled in the new book: The Alpha
Masters
Q4 2012 www.hedgefundwisdom.com
mentioned. Signs of this happening are already evident as inflows to equity funds at the start of the year were higher than they have been in quite some time.
As far as specific picks go, the Appaloosa manager touted Citigroup (C), noting that it potentially has 50% upside as he feels the company’s foreign business is very valuable. He’s also bullish on airlines. Hedge Fund Wisdom highlighted how Tepper was building airline positions in past issues. The hedge fund manager highlights a few reasons to be bullish on the sector: a potential strong dollar scenario, oil prices remaining largely flat (due to new discoveries), as well as a consolidating industry (US Airways and American Airlines are set to merge). He’s looking for some airlines to start returning capital as well. His largest airline equity stake is United (UAL) at $213 million, followed by US Airways (LCC) at $162 million, and then Delta (DAL) at $122 million.
Turning to recent activity, the biggest takeaway is that while the majority of other hedge funds were selling Apple (AAPL) shares, Appaloosa was out buying in a big way. They boosted the amount of shares they own by 75% during the quarter and it’s now their top disclosed US equity long. Their brand new stake in HCA (HCA) is also worth highlighting as other hedge funds were buying the for-profit hospital too.
Lastly, if there was any doubt about Tepper’s bullishness, take this as an example: a 756% increase in his position in the SPDR S&P 500 (SPY) exchange traded fund, now his 13th largest holding. He’s certainly put his money where his mouth is.
Appaloosa Management
16 Q4 2012 www.hedgefundwisdom.com
Appaloosa Management
Continued on next page…
Fourth Quarter 2012 Portfolio:
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 Apple Inc. AAPL
10.54% Added 75% $486,476 912,661 2 Citigroup, Inc. C
7.88% Cut -10% $363,736 9,194,547
3 AmericanInternationalGroup AIG
4.63% Cut -27% $213,883 6,059,000 4 United Continental Holdings UAL
4.62% Cut -7% $213,193 9,118,613
5 Goodyear Tire & Rubber Co. GTPPP
4.29% Added 0% $198,113 14,345,610 6 QUALCOMM Incorporated QCOM
3.72% Added 20% $171,792 2,769,941
7 US Airways Group, Inc. LCC
3.53% Cut -11% $162,932 12,069,029 8 General Motors GM
3.35% Cut -10% $154,483 5,358,400
9 Ford Motor Co. F
3.13% Cut -4% $144,457 11,154,973 10 Google Inc. GOOG
2.84% Cut -5% $131,304 185,100
11 HCA HLDGS INC COM HCA
2.83% New $130,501 4,325,532 12 Delta Air Lines Inc. DAL
2.65% Cut -1% $122,310 10,304,135
13 SPDR S&P 500 SPY
2.58% Added 757% $119,341 837,366 14 Huntsman Corporation HUN
2.55% Cut -7% $117,660 7,400,000
15 Broadcom Corp. BRCM
2.46% Cut -4% $113,579 3,420,025 16 MetLife, Inc. MET
2.42% New $111,530 3,385,858
17 Hartford Financial Services HIG
2.42% Added 38% $111,840 4,983,959 18 PowerShares QQQ QQQ
2.28% Cut -75% $105,165 1,615,182
19 EMC Corporation EMC
2.27% Added 48% $104,698 4,138,269 20 JPMorgan Chase & Co. JPM
2.19% Cut -4% $101,183 2,301,178
21 Owens Corning OC
1.90% Cut -2% $87,578 2,367,616 22 Microsoft Corporation MSFT
1.82% Added 179% $84,237 3,151,400
23 MGM Resorts MGM
1.74% Added 0% $80,312 6,899,615 24 Oracle Corp. ORCL
1.73% Cut -14% $79,805 2,395,110
25 Masco Corporation MAS
1.47% Cut -23% $67,981 4,080,479 26 Transocean Ltd. RIG
1.45% New $66,986 1,500,255
27 Whirlpool Corp. WHR
1.23% Cut -14% $56,998 560,180 28 Weatherford WFT
1.21% New $56,041 5,008,107
29 Noble Corp. NE
1.01% New $46,639 1,339,443 30 Ensco plc ESV
0.93% New $42,750 721,149
31 SanDisk Corp. SNDK
0.92% Added 45% $42,253 970,000 32 Mueller Water Products MWA
0.92% Cut -16% $42,364 7,551,469
33 DELPHI AUTOMOTIVE DLPH
0.73% Added 302% $33,870 885,483 34 FUSION-IO, INC. FIO
0.70% Cut -10% $32,216 1,404,977
35 Sealed Air Corporation SEE
0.70% Cut -10% $32,379 1,849,190 36 Celanese Corp. CE
0.63% Added 27% $29,294 657,852
37 Dean Foods Co. DF
0.62% Cut -22% $28,480 1,725,000 38 Bank of America Corp BAC
0.62% Cut -10% $28,803 2,483,008
39 Two Harbors Investment TWO
0.59% Cut -10% $27,035 2,440,000 40 Valero Energy Corp. VLO
0.57% Cut -8% $26,429 774,576
41 NetApp, Inc. NTAP
0.52% Cut -21% $23,982 714,799 42 Chimera Investment CIM
0.51% Cut -13% $23,490 9,000,000
43 Calumet Specialty CLMT
0.48% Cut -24% $21,991 723,639 44 Beazer Homes USA Inc. BZH
0.47% Cut -10% $21,519 1,274,095
45 BERRY PLASTICS BERY
0.46% New $21,308 1,325,100
17
Q4 2012 www.hedgefundwisdom.com
Appaloosa Management Fourth Quarter 2012 Portfolio: …Continued
Next Page: Pershing Square
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
46 SPDR S&P 500 SPY CALL 0.44% New $20,264 192,058 47 Freeport-McMoRan FCX
0.39% New $17,796 520,337
48 Hartford Financial Warrant HIG/WS
0.37% Unchanged $17,193 1,275,475 49 BorgWarner Inc. BWA
0.35% New $15,956 222,789
50 MPG Office Trust, Inc. MPG
0.27% Cut -3% $12,625 4,099,174 51 Boyd Gaming Corp. BYD
0.27% Cut -7% $12,418 1,870,254
52 CF Industries Holdings CF
0.21% Cut -10% $9,745 47,967 53 MFA Financial, Inc. MFA
0.15% Cut -10% $7,082 873,283
54 Teradyne Inc. TER
0.14% Cut -10% $6,394 378,596 55 PowerShares QQQ QQQ CALL 0.10% New $4,596 106,767 56 Tenneco Inc. TEN
0.09% New $4,088 116,448
57 General Motors Warrants GM/WS/A
0.07% Unchanged $3,423 175,561 58 General Motors Warrants GM/WS/B
0.05% Unchanged $2,193 175,561
59 Hartford Financial HIG CALL
Sold 60 Lam Research Corporation LRCX
Sold
61 International Paper Co. IP
Sold 62 iSharesUS HomeConstruction ITB
Sold
63 JetBlue Airways Corporation JBLU
Sold 64 Morgan Stanley MS
Sold
65 Macy's, Inc. M
Sold 66 Marvell Technology MRVL
Sold
18
View Pershing Square’s Updated Portfolio on the Next Page
Key Takeaways New Posit ions: None Sold Out: Alexander & Baldwin (ALEX)
Bill Ackman made literally only two changes to his portfolio during the fourth quarter on the long side. He sold completely out of Alexander & Baldwin (ALEX) and reduced his position in Procter & Gamble (PG) call options by 32%. The lack of trading activity is not to say he wasn’t busy though, that’s for sure. The big story from Pershing Square Management is that they’ve revealed a short position in Herbalife (HLF). In fact, they have an “enormous” short position according to Ackman, over 20 million shares that they started shorting around nine months ago. Ackman presented the idea in a 334-slide presentation entitled “Who wants to be a millionaire?” (which you can view here). In it, he flat out calls the multi-level marketing company a ponzi scheme. Shares of Herbalife plunged from $40 down to $25 on the news of his short position. This steep decline prompted Dan Loeb’s Third Point (a hedge fund profiled later in this issue) to step in and establish a long position in Herbalife. Loeb applies a 10-12x earnings multiple and suggested HLF shares are worth $55-68 and pointed out the substantial short interest as a potential for a squeeze in the future.
HLF has traded like a rollercoaster, quickly rebounding from the Ackman-presentation-lows to as high as $46 over the course of a month. Then a little over a week later, shares dropped to $31 on FTC investigation fears. Most recently, HLF has
rallied yet again to where it presently trades around $38. The multi-level marketing company has struck back, defending itself against Ackman’s claims. Ackman then addressed their statement and asked more questions of his own, in a follow-up entitled ‘Questions for Herbalife’ which you can view here.
But it gets even more interesting. Billionaire and activist investor Carl Icahn last week filed a 13D with the SEC revealing that he has a whopping total economic interest in HLF of 14,015,151 shares, around 13% of the company. The vast majority of his position is via long call options and short put options (the equivalent of being long the stock). His filing indicates that he will seek to talk to management about a recapitalization or going-private transaction. One detail that’s worth highlighting here is that Ackman and Icahn had a very public spat on television. It’s clear they do not like each other. While Icahn bought some of his position before the end of 2012, the crazy thing here is that Icahn bought the overwhelming majority of his HLF stake after his argument with Ackman. It’s quite obvious he’s trying to squeeze Ackman. It will be interesting to see how this one plays out, as it’s obviously far from over. HLF is analyzed later in this issue.
For something a bit lighter, Ackman did a video for Floating University entitled ‘Everything You Need to Know About Finance and Investing In Under an Hour’ which you can view here.
Check out Ackman’s recommended
reading list
Subject of the book Confidence Game: How a Hedge Fund Manager
Called Wall Street’s Bluff
Bill Ackman
Q4 2012 www.hedgefundwisdom.com
Pershing Square Capital
19
Pershing Square
Next Page: Maverick Capital
Fourth Quarter 2012 Portfolio:
Q4 2012 www.hedgefundwisdom.com
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 Canadian Pacific Railway CP
26.82% Unchanged $2,455,128 24,159,888 2 Procter & Gamble Co. PG
20.73% Unchanged $1,897,314 27,946,892
3 General Growth Properties GGP
16.21% Unchanged $1,483,465 74,733,712 4 Beam, Inc. BEAM
13.89% Unchanged $1,271,804 20,818,545
5 J. C. Penney Company JCP
8.41% Unchanged $770,183 39,075,771 6 Burger King Worldwide BKW
6.89% Unchanged $630,661 38,361,360
7 Procter & Gamble Co. PG CALL 3.21% Cut -33% $294,181 4,333,200 8 Howard Hughes Corp HHC
2.85% Unchanged $260,537 3,568,017
9 MATSON INC MATX
0.98% Added 0% $90,103 3,644,948 10 Alexander & Baldwin ALEX
Sold
20
Lee Ainslie’s hedge fund firm Maverick Capital saw its flagship fund return 16% in 2012 while its levered fund surged 32% on the year. In portfolio activity from the fourth quarter, the firm sold completely out of its old stake in Citigroup (C), which is notable due to its previous size as a core investment. They essentially replaced that with brand new positions in EMC (EMC) as well as Crown Castle (CCI). Another big takeaway from their portfolio is the fact that Macy’s (M) is now their largest holding. After starting a large new stake in the third quarter, they continued to buy shares in the fourth quarter to ramp up their position size, as it’s now a $294 million stake. Shares are currently
Key Takeaways
New Posit ions: EMC (EMC) Crown Castle (CCI) Fidelity National Information (FIS) FleetCor Technologies (FLT) F5 Networks (FFIV) Liberty Media (LMCA) Nordstrom (JWN) United Parcel Service (UPS) Schlumberger (SLB) Facebook (FB) Whole Foods (WFM) Sold Out: Citigroup (C) Endo Health (ENDP) Oracle (ORCL) JC Penney (JCP) Arcos Dorados (ARCO) Walt Disney (DIS) RenRen (RENN) Amazon.com (AMZN) Valeant Pharmaceuticals (VRX)
still trading around the same range where Maverick could have purchased in Q4. Last quarter’s issue of the newsletter also drew attention to Maverick’s new (at the time) buy of Express Scripts (ESRX). They were out buying even more shares again in the fourth quarter, ramping up their stake by 57% as it is now their fourth largest holding.
Maverick has launched a ‘Maverick Select’ fund that traded internal capital last year and began accepting new capital this year. It has fees of 2.25% for management and 22.5% for performance (or the common 2/20 in exchange for a 3 year lockup). The fund is said to be capped at $1 billion and is a concentrated portfolio of 15-20 longs and 15-20 shorts. What’s interesting is they’ve almost taken a quantitative approach as they’re using their proprietary MavRank system to determine which most highly ranked stocks make the cut. The system takes stocks in their main portfolio and ranks them based on potential risk and return. At the recent Morgan Stanley Breakers Conference, Ainslie said that “new capital has very different expectations” as they’re almost conditioned to desire lower volatility and lower returns. Ainslie also feels that the hedge fund industry will produce above average returns over the next few years.
Shifting to some of Maverick’s short positions, recent European regulation on disclosures of short positions has forced many hedge funds to reveal their once hidden gems. In November, Maverick disclosed that it was short -2.22% of Elekta in Sweden, -0.98% of Delhaize Group in Belgium, as well as the following companies in Finland: -1.7% Nokia, -2.8% Outotec, and -1.53% Stora Enso.
View Maverick Capital’s Updated Portfolio on the Next Page
Lee Ainslie
Q4 2012 www.hedgefundwisdom.com
Maverick Capital
14.0% annualized returns since inception in 1995
Compares a company’s enterprise value to sustainable free cash flow
21
Maverick Capital Fourth Quarter 2012 Portfolio:
Continued on next page…
Q4 2012 www.hedgefundwisdom.com
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 Macy's, Inc. M
4.35% Added 33% $294,185 7,539,351 2 Apple Inc. AAPL
4.29% Added 1% $289,679 544,333
3 QUALCOMM Inc QCOM
4.22% Cut -17% $285,120 4,609,143 4 Express Scripts Inc. ESRX
4.04% Added 58% $273,189 5,059,061
5 Polo Ralph Lauren Corp. RL
4.02% Added 30% $271,600 1,811,630 6 Family Dollar Stores Inc. FDO
3.96% Added 48% $267,616 4,220,414
7 NetApp, Inc. NTAP
3.91% Cut -12% $263,856 7,864,559 8 Citrix Systems, Inc. CTXS
3.66% Add 155% $247,316 3,768,917
9 Dollar General Corp DG
3.34% Cut -5% $225,676 5,118,538 10 FidelityNationalFinancial FNF
3.12% Added 39% $210,916 8,956,105
11 TransDigm Group TDG
3.10% Added 59% $209,428 1,535,844 12 Google Inc. GOOG
3.05% Cut -11% $206,134 291,405
13 CIGNA Corporation CI
2.94% Cut -39% $198,895 3,720,446 14 NVR Inc. NVR
2.86% Added 5% $193,326 210,137
15 Priceline.com Inc PCLN
2.84% Cut -19% $192,070 309,596 16 Avago Technologies AVGO
2.67% Cut -33% $180,160 5,692,111
17 EMC Corporation EMC
2.39% New $161,120 6,368,390 18 Skyworks Solutions SWKS
2.23% Cut -28% $150,398 7,408,746
19 Liberty Global Inc. LBTYA
2.22% Added 60% $150,161 2,385,018 20 United Technologies UTX
2.20% Cut -21% $148,556 1,811,432
21 Comcast Corporation CMCSA
2.17% Cut -12% $146,747 3,927,905 22 Crown Castle Intl CCI
1.61% New $108,739 1,506,920
23 News Corp. NWSA
1.56% Cut -1% $105,251 4,125,860 24 Liquidity Services, Inc. LQDT
1.54% Added 7% $104,151 2,548,964
25 Las Vegas Sands Corp LVS
1.53% Cut -11% $103,098 2,233,486 26 Mastercard Incorporated MA
1.51% Cut -39% $101,871 207,359
27 Fidelity National Info FIS
1.50% New $101,538 2,916,915 28 Fomento Econ FMX
1.46% Cut -56% $98,379 976,953
29 Fleetcor Technologies FLT
1.46% New $98,381 1,833,752 30 Teradata Corporation TDC
1.37% Cut -9% $92,635 1,496,769
31 Cognizant Technology CTSH
1.30% Cut -61% $88,014 1,191,269 32 Polycom, Inc. PLCM
1.28% Cut -18% $86,155 8,236,587
33 F5 Networks, Inc. FFIV
1.24% New $83,647 861,010 34 Liberty Media LMCA
1.05% New $71,157 613,367
35 YOUKU.COM INC. YOKU
1.04% Cut -11% $70,040 3,839,937 36 Nordstrom Inc. JWN
1.02% New $68,915 1,288,134
37 Anheuser-Busch InBev BUD
0.94% Cut -34% $63,606 727,670 38 United Parcel Service UPS
0.87% New $58,857 798,273
39 TripAdvisor Inc TRIP
0.84% Cut -60% $56,872 1,356,677 40 Schlumberger Limited SLB
0.84% New $56,899 821,068
41 Facebook, Inc. FB
0.83% New $56,372 2,117,680 42 Visa, Inc. V
0.78% Cut -62% $52,604 347,041
43 CareFusion Corporation CFN
0.77% Cut -68% $51,768 1,811,353 44 Whole Foods Market WFM
0.77% New $52,252 573,191
45 Cameron International CAM
0.74% Cut -72% $49,741 880,999
22
Next Page: Third Point
Fourth Quarter 2012 Portfolio: …Continued
Maverick Capital
Q4 2012 www.hedgefundwisdom.com
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
46 Qlik Technologies, Inc. QLIK
0.72% New $48,767 2,245,268 47 Berkshire Hathaway Inc. BRK-B
0.65% Cut -18% $43,978 490,276
48 Unitedhealth Group, Inc. UNH
0.57% New $38,529 710,348 49 Comcast Corporation CMCSK
0.51% Cut -55% $34,513 960,835
50 NetApp, Inc. NOTE NTAP
0.46% New $30,938 27,500,000 51 iStar Financial Inc. SFI
0.45% Add 114% $30,560 3,749,634
52 FidelityNational NOTE FIS
0.38% New $25,587 20,000,000 53 Ironwood Pharma IRWD
0.34% Unchanged $23,287 2,101,695
54 ERICSSON ADR CL-B ERIC
0.15% Cut -63% $10,414 1,031,098 55 Berkshire Hathaway Inc. BRK-A
0.11% Cut -63% $7,641 57
56 PACIFIC BIOSCIENCES PACB
0.09% Unchanged $6,004 3,531,953 57 BRIGHTCOVE INC BCOV
0.07% Unchanged $4,540 502,252
58 Bluefly Inc. BFLY
0.05% Unchanged $3,445 3,704,101 59 icad Inc. ICAD
0.00% New $33 6,791
60 Coca-Cola FEMSA KOF
Sold 61 BANKRATE INC RATE
Sold
62 Walt Disney Co. DIS
Sold 63 Rockwell Automation ROK
Sold
64 Tyco International Ltd. TYC
Sold 65 RENREN INC RENN
Sold
66 SUPERVALU Inc. SVU
Sold 67 Amazon.com Inc. AMZN
Sold
68 ENDO HEALTH ENDP
Sold 69 Progressive Corp. PGR
Sold
70 Yahoo! Inc. YHOO
Sold 71 Oracle Corp. ORCL
Sold
72 Valeant Pharma VRX
Sold 73 ARCOS DORADOS ARCO
Sold
74 Citigroup, Inc. C
Sold 75 J. C. Penney Co JCP
Sold
23
Third Point’s Offshore Fund finished 2012 up 21.2% and they’ve had higher net long equity exposure for a few months now. In November, they were 27.7% net long equities and at the end of January, they were 37.8% net long. Dan Loeb’s fourth quarter letter to investors shed some light on his thesis on brand new investments in Tesoro (TSO) and Morgan Stanley (MS). Regarding TSO, Third Point writes, “Tesoro has several characteristics we like in an investment: 1) significant hidden value in high-multiple assets like retail, pipelines, and General Partner interests; 2) impending transactions/projects that are underappreciated by the market; and 3) a shareholder-friendly management team focused on creating value. While it is perhaps unusual to invest in a company following a quarter (Q3 2012) in which the stock appreciated by ~68%, we believe Tesoro remains misunderstood by the market; as evidence, current sell-side analyst price
Key Takeaways
New Posit ions: News Corp (NWSA) Tesoro (TSO) Morgan Stanley (MS) Abbott Labs (ABT) Equinix (EQIX) Herbalife (HLF) Agrium (AGU) Dollar General (DG) Illumina (ILMN) Cheniere Energy (LNG) Sold Out: Apple (AAPL) Unitedhealth (UNH) United Technologies (UTX) Wellpoint (WLP) Kraft Foods (KFT ~ old ticker)
targets range from $35 to $84 … Using conservative assumptions, we see Tesoro generating about $9 per share in annual excess FCF on a normalized basis and our expectation is that shares can double from the current price of $40.” TSO shares have jumped even higher to $54.
Third Point’s thesis on their new position in Morgan Stanley is as follows: “We believe (it) is in the early stages of a turnaround … our enthusiasm about MS’s turnaround benefits from our generally constructive macro views. We expect CEO confidence to rise and global corporate activity levels to increase markedly in 2013. Morgan Stanley, with its sterling reputation, talent pool, and record in execution in investment banking advisory and capital markets, is uniquely positioned to benefit from this improvement. Assuming Wealth Management pre-tax margins improve to 20% by 2014, Morgan Stanley’s earnings profile will shift toward a 50/50 split between cyclical, capital intensive capital markets businesses and a stable, capital-light Wealth Management business. This should lead to multiple expansion towards 12-13x on projected earnings of approximately $3 per share driven by the Wealth Management margin improvement, FICC restructuring initiatives, and a stronger corporate activity environment. The combination of these factors suggests Morgan Stanley shares should nearly double form the recent $20 level.” Third Point acquired their stake in MS at an average cost of $16.77 per share.
View Third Point’s Updated Portfolio on the Next Page
Dan Loeb
Q4 2012 www.hedgefundwisdom.com
Third Point Offshore fund has returned 18.4% annualized since inception
Focuses on event-driven and
distressed plays
View his recommended reading list
24
Third Point Fourth Quarter 2012 Portfolio:
Continued on next page…
Q4 2012 www.hedgefundwisdom.com
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 Yahoo! Inc. YHOO
26.59% Unchanged $1,452,708 73,000,400 2 AmericanInternationalGroup AIG
11.95% Cut -21% $653,050 18,500,000
3 DELPHI AUTOMOTIVE PLC DLPH
7.00% Unchanged $382,500 10,000,000 4 Murphy Oil Corporation MUR
6.77% Added 28% $370,103 6,215,000
5 News Corp. NWSA
3.27% New $178,570 7,000,000 6 Tesoro Corporation TSO
2.94% New $160,782 3,650,000
7 Morgan Stanley MS
2.71% New $148,180 7,750,000 8 LyondellBasell Industries LYB
2.51% Cut -4% $137,016 2,400,000
9 Nexen Inc. NXY
2.47% Unchanged $134,700 5,000,000 10 Symantec Corporation SYMC
2.31% Added 12% $126,094 6,700,000
11 Equinix, Inc. EQIX
1.98% New $108,255 525,000 12 Liberty Global Inc. LBTYA
1.90% Added 6% $103,884 1,650,000
13 Herbalife Ltd. HLF
1.87% New $102,114 3,100,000 14 Agrium Inc. AGU
1.83% New $99,871 1,000,000
15 Dollar General Corporation DG
1.74% New $94,794 2,150,000 16 WESCO International Inc. WCC
1.67% Cut -21% $91,030 1,350,000
17 Sensata Technologies ST
1.64% Added 57% $89,320 2,750,000 18 Illumina Inc. ILMN
1.53% New $83,385 1,500,000
19 Coca-Cola Enterprises Inc. CCE
1.45% Unchanged $79,325 2,500,000 20 HILLSHIRE BRANDS HSH
1.39% Cut -17% $75,978 2,700,000
21 Cheniere Energy, Inc. LNG
1.38% New $75,120 4,000,000 22 Liberty Global Inc. LBTYK
1.34% Unchanged $73,438 1,250,000
23 Constellation Brands Inc. STZ
1.23% Cut -17% $67,241 1,900,000 24 Phillips-Van Heusen Corp. PVH
1.22% New $66,606 600,000
25 International Paper Co. IP
1.09% New $59,760 1,500,000 26 Louisiana-Pacific Corp. LPX
1.06% New $57,960 3,000,000
27 Abbott Laboratories ABT
1.05% New $57,478 1,834,000 28 Capital One Financial Corp. COF
0.95% New $52,137 900,000
29 Foster Wheeler AG FWLT
0.93% Added 5% $51,072 2,100,000 30 Ariad Pharmaceuticals Inc. ARIA
0.88% Added 85% $47,950 2,500,000
31 Compuware Corporation CPWR
0.70% New $38,045 3,500,000 32 Electronic Arts Inc. EA
0.64% New $34,848 2,400,000
33 ENPHASE ENERGY, INC. ENPH
0.50% Unchanged $27,189 7,448,987 34 SPDR Gold Shares GLD
0.39% Unchanged $21,063 130,000
35 TransDigm Group Inc TDG
0.37% New $20,454 150,000 36 Energen Corp. EGN
0.35% New $19,163 425,000
37 ABBVIE INC. ABBV
0.26% New $14,211 416,000 38 BioFuel Energy Corp. BIOF
0.07% Unchanged $3,839 1,043,123
39 MetLife, Inc. MET CALL 0.06% Cut -30% $3,308 3,500,000 40 Herbalife Ltd. HLF CALL 0.01% New $390 200,000 41 BioMarin Pharma BMRN
Sold
42 Mondelez International MDLZ
Sold 43 CIGNA Corporation CI
Sold
44 NXP Semiconductors NV NXPI
Sold 45 Autodesk, Inc. ADSK
Sold
25
Third Point
Next Page: Blue Ridge Capital
Q4 2012 www.hedgefundwisdom.com
Fourth Quarter 2012 Portfolio: …Continued
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
46 Vertex Pharma VRTX
Sold 47 RBS Preferred N RBS-PN
Sold
48 United Technologies Corp. UTX
Sold 49 Westlake Chemical Corp. WLK
Sold
50 RBS Preferred S RBS-PS
Sold 51 Symantec Corporation SYMC CALL
Sold
52 Weatherford Intl WFT
Sold 53 RBS Preferred Q RBS-PQ
Sold
54 Apple Inc. AAPL
Sold 55 Cabot Oil & Gas Corporation COG
Sold
56 Newell Rubbermaid Inc. NWL
Sold 57 RBS Preferred T RBS-PT
Sold
58 Murphy Oil Corporation MUR CALL
Sold 59 Unitedhealth Group, Inc. UNH
Sold
60 WellPoint Inc. WLP
Sold 61 Chesapeake Energy NOTE CHK
Sold
26
John Griffin’s hedge fund firm trimmed two of its former top holdings in the fourth quarter, selling 19% of its Apple (AAPL) stake (previously their top position) as well as 30% of their Amazon.com (AMZN) position. On the buying side, Blue Ridge did have an appetite for some other shares. Dollar stores were a favorite buy among hedge funds in the fourth quarter and Blue Ridge was no exception as they increased their position size in Dollar Tree (DLTR) by 40%, as it’s now their eighth largest US disclosed long. Previous issues of the newsletter also flagged the hedge fund’s past purchases of Owens Corning (OC). They continued to buy shares of this name for the third consecutive quarter, slowly amassing a larger position size. Additionally, after initiating new stakes in Equinix (EQIX) and Time Warner (TWX) in the third quarter, they almost doubled their position in both the datacenter company and the media conglomerate in the fourth quarter as well. Both of these stocks have been consensus hedge fund buys in recent
Key Takeaways
New Posit ions: Grupo Financiero Santander (BSMX) ~ IPO Realogy (RLGY) ~ IPO Virgin Media (VMED) IHS (HIS) Sally Beauty Holdings (SBH) Workday (WDAY) ~ IPO Wyndham (WYN) Tenet Healthcare (THC) Molycorp (MCP) Sold Out: Martin Marietta (MLM) TripAdvisor (TRIP) Ivanhoe Energy (IVAN)
quarters. Blue Ridge’s purchase of shares of Virgin Media (VMED) was also well-timed as the company recently received a buyout bid from Liberty Global (LBTYA), a company which the hedge fund also owns shares of.
For-profit hospitals were a consensus buy by hedge funds this past quarter and Tenet Healthcare (THC) and HCA (HCA) were the two most popular choices. Blue Ridge bid on shares of both during the fourth quarter. While they previously owned HCA, they boosted their position size by 36% and it’s their largest exposure to this theme. That said, they also initiated a brand new holding in THC as well.
Shifting back to some portfolio sales, it is worth highlighting that John Griffin’s firm almost cut its position in Verisign (VRSN) in half. This was previously a decent sized core investment for them. While this move could have simply been a risk management measure after the company wasn’t allowed to raise prices in a contract renewal, it will be interesting to see if they continue to hold shares next quarter. VRSN has seen swings from $48 down to $34 and back up to its current level of around $46 over the past few months.
Recent European regulations have forced hedge funds to disclose some of their short positions. As such, searching through databases reveals that at the end of November, Blue Ridge was short -0.82% of KGHM in Poland, -1.82% of Pandora in Denmark, -4.47% of Vestas Wind Systems in Denmark, as well as -1.34% of Nokia in Finland.
View Blue Ridge Capital’s Updated Portfolio on the Next Page
Q4 2012 www.hedgefundwisdom.com
Blue Ridge Capital John Griffin
Classifies investments as catalyst
driven or time arbitrage & previously was Julian Robertson’s right-hand
man
View his recommended reading list
27
Blue Ridge Capital Fourth Quarter 2012 Portfolio:
Q4 2012 www.hedgefundwisdom.com
Next Page: Paulson & Co
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 Google Inc. GOOG
5.37% Added 5% $385,734 545,300 2 AmericanInternationalGroup AIG
5.13% Unchanged $368,532 10,440,000
3 Priceline.com Incorporated PCLN
4.78% Unchanged $343,696 554,000 4 Thermo Fisher Scientific TMO
4.45% Unchanged $319,538 5,010,000
5 Gilead Sciences Inc. GILD
4.09% Added 12% $293,800 4,000,000 6 Monsanto Co. MON
4.00% Unchanged $287,263 3,035,000
7 Apple Inc. AAPL
3.92% Cut -20% $282,052 530,000 8 DOLLAR TREE STORES DLTR
3.67% Added 40% $263,640 6,500,000
9 Sensata Technologies ST
3.56% Unchanged $255,780 7,875,000 10 Amazon.com Inc. AMZN
3.53% Cut -31% $253,379 1,010,000
11 Owens Corning OC
3.43% Added 24% $246,723 6,670,000 12 Liberty Global Inc. LBTYA
3.42% Unchanged $245,544 3,900,000
13 Polo Ralph Lauren Corp. RL
3.42% Unchanged $245,869 1,640,000 14 Equinix, Inc. EQIX
3.36% Added 88% $241,254 1,170,000
15 GrupoFinancieroSantander BSMX
3.08% New $221,262 13,675,000 16 REALOGY HOLDINGS RLGY
3.06% New $220,290 5,250,000
17 Colfax Corporation CFX
3.01% Unchanged $216,680 5,370,000 18 Range Resources Corp RRC
2.89% Unchanged $207,967 3,310,000
19 Virgin Media, Inc. VMED
2.35% New $169,050 4,600,000 20 Time Warner Inc. TWX
2.27% Added 95% $163,100 3,410,000
21 IHS Inc. IHS
2.24% New $161,280 1,680,000 22 W.R. Grace & Co. GRA
2.19% Added 22% $157,318 2,340,000
23 Walt Disney Co. DIS
2.06% Unchanged $148,374 2,980,000 24 VeriSign Inc. VRSN
1.89% Cut -44% $135,870 3,500,000
25 WABCO Holdings Inc. WBC
1.82% Cut -19% $130,706 2,005,000 26 Delta Air Lines Inc. DAL
1.77% Cut -25% $127,128 10,710,000
27 SIRIUS XM Radio Inc. SIRI
1.74% Cut -45% $125,137 43,300,000 28 HCA HLDGS HCA
1.69% Added 37% $121,717 4,040,000
29 Sally Beauty Holdings SBH
1.56% New $112,311 4,765,000 30 America Movil AMX
1.47% Unchanged $105,866 4,575,000
31 WORKDAY, INC. WDAY
1.36% New $97,991 1,798,000 32 Wyndham Worldwide Corp WYN
1.29% New $92,646 1,741,141
33 United Continental Holdings UAL
1.21% Cut -25% $87,324 3,735,000 34 BioMarin Pharmaceutical BMRN
1.20% Cut -20% $86,100 1,750,000
35 YOUKU.COM INC. YOKU
0.91% Unchanged $65,664 3,600,000 36 Tenet Healthcare Corp. THC
0.78% New $56,335 1,735,000
37 MICHAEL KORS KORS
0.69% Cut -25% $49,754 975,000 38 Molycorp, Inc. MCP
0.38% New $27,043 2,864,700
39 MGIC Investment Corp. MTG
0.37% Unchanged $26,336 9,900,600 40 AIG Warrants AIG/WS
0.22% Unchanged $15,870 1,150,000
41 JPMorganChase Warrants JPM/WS
0.15% Unchanged $11,065 933,000 42 WESTPORT INNOVATIONS WPRT
0.11% Unchanged $8,127 304,278
43 Tesla Motors, Inc. TSLA
0.09% Unchanged $6,774 200,000 44 MARTIN MARIETTA MTRL MLM
Sold
45 Ivanhoe Energy Inc. IVAN
Sold 46 TripAdvisor Inc TRIP
Sold
28
John Paulson’s investment firm manages around $20 billion but the poor performance streak looks to have continued. His Advantage Plus fund was down 19% in 2012, largely due to bets that the European sovereign-debt crisis would worsen. His regular Advantage fund was down 14%. Additionally, his bullish bets on gold stocks didn’t fare too well. Paulson’s Gold Fund was down 25% in 2012 (after being down 11% in 2011). His other funds, however, were up for 2012. Paulson Enhanced finished up 18%, Credit Opportunities finished up 9.1% and his Recovery Fund finished 2012 up 3.9%. Given the poor performance of his larger funds, it should come as no surprise that assets under management have fallen from two years ago as he’s seen redemptions.
Turning to Paulson & Co’s latest portfolio activity, it’s always worth a reminder that since
Key Takeaways
New Posit ions: Sprint (S) Plains Exploration (PXP) Realogy (RLGY) * see commentary Freeport McMoran (FCX) McMoRan Exploration (MMR) Aetna (AET) Pioneer Natural Resources (PXD) Murphy Oil (MUR) WP Carey (WPC) NRG Energy (NRG) Mead Johnson Nutrition (MJN) Sold Out: Genon Energy (GEN) Cooper Industries (CBE) Amerigroup (AGP) Robbins & Myers (RBN) Par Pharmaceuticals (PRX)
Paulson has numerous funds each pursuing different strategies, you have to keep that in consideration when viewing his entire portfolio (because it’s a melting pot of all his funds’ holdings combined). For example, a lot of Paulson’s new buys listed in the column to the left are risk arbitrage plays held in his hedge fund that pursues his legacy strategy of merger arbitrage. Softbank is buying 70% of Sprint Nextel (S). Additionally, both Plains Exploration & Production (PXP) and McMoRan Exploration (MMR) are being bought out by Freeport McMoran (FCX), all of which Paulson acquired in the fourth quarter. Nexen (NXY), a position Paulson added to by 321% in the quarter, recently received both Canadian and US regulatory approval for its transaction as CNOOC is set to take over the company.
In other portfolio activity, Realogy (RLGY) recently completed its initial public offering, but Paulson actually already had a stake. The hedge fund firm owned 11% Series A, B, and C Convertible Senior Subordinated Notes due 2018 that they agreed to convert into shares of common stock during RLGY’s IPO. Realogy owns the well-known real estate brokerage brands Coldwell Banker and Century 21, among others. Apollo Global Management originally took the company private in an ill-timed move back in 2007, but now the company is publicly traded again. Paulson originally received around 11.8 million shares from this transaction and their latest portfolio disclosure reveals that they now own 13.3 million RLGY shares, so it looks as though they’ve acquired some additional shares along the way.
View Paulson & Co’s Updated Portfolio on the Next Page
Q4 2012 www.hedgefundwisdom.com
Paulson & Co John Paulson
Predicted & profited from the subprime crisis; manages $35bn
Featured in the book The Greatest
Trade Ever
29
Paulson & Co Fourth Quarter 2012 Portfolio:
Continued on next page…
Q4 2012 www.hedgefundwisdom.com
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 SPDR Gold Shares GLD
21.75% Unchanged $3,538,129 21,837,552 2 AngloGold Ashanti Ltd. AU
5.44% Cut -1% $884,759 28,203,999
3 Sprint Nextel Corp. S
4.45% New $724,019 127,693,000 4 Nexen Inc. NXY
4.22% Add 321% $686,835 25,495,000
5 Life Technologies Corp LIFE
4.22% Added 4% $686,420 14,000,000 6 Mylan, Inc. MYL
4.13% Unchanged $672,618 24,503,400
7 PlainsExploration&Production PXP
3.69% New $600,832 12,800,000 8 REALOGY HOLDINGS CORP. RLGY
3.43% New $558,166 13,302,344
9 GRIFOLS, S.A. GRFS
3.22% Added 17% $523,266 20,179,935 10 DELPHI AUTOMOTIVE PLC DLPH
3.18% Cut -46% $516,500 13,503,255
11 MGM Resorts MGM
2.69% Unchanged $438,195 37,645,600 12 Equinix, Inc. EQIX
2.66% Unchanged $433,020 2,100,000
13 Hartford Financial Services HIG
2.52% Cut -7% $409,618 18,253,907 14 MetroPCS Communications PCS
1.94% Added 34% $316,092 31,800,000
15 Freeport-McMoRan FCX
1.89% New $307,800 9,000,000 16 AMC NETWORKS AMCX
1.80% Unchanged $293,535 5,930,000
17 McMoRan Exploration Co. MMR
1.53% New $249,679 15,556,300 18 HCA HLDGS INC COM HCA
1.29% Cut -13% $209,682 6,950,000
19 Aetna Inc. AET
1.28% New $208,395 4,500,000 20 CNO Financial Group, Inc. CNO
1.23% Cut -4% $200,701 21,511,400
21 Cablevision Systems CVC
1.12% Add 478% $181,488 12,147,800 22 RYMAN HOSPITALITY RHP
1.02% New $165,396 4,300,459
23 NovaGold Resources Inc. NG
1.00% Unchanged $162,745 35,970,518 24 Bank of America Warrants BAC/WS/A
0.91% Cut -1% $148,109 27,333,865
25 HILLSHIRE BRANDS HSH
0.87% Added 18% $142,031 5,047,308 26 Ralcorp Holdings Inc. RAH
0.83% Unchanged $134,475 1,500,000
27 Capital One Financial COF
0.78% Unchanged $127,446 2,200,000 28 Shire plc SHPG
0.78% Unchanged $126,360 1,370,800
29 InterDigital, Inc. IDCC
0.76% Unchanged $123,270 3,000,000 30 Scripps Networks SNI
0.75% Unchanged $121,632 2,100,000
31 Wells Fargo & Company WFC
0.73% Unchanged $119,322 3,491,000 32 AngloGoldAshanti Convertible AU/PA
0.70% Cut -1% $113,422 3,035,100
33 Rock-Tenn Co. RKT
0.69% Added 22% $111,856 1,600,000 34 Popular Inc. BPOP
0.67% Unchanged $108,294 5,208,948
35 Pioneer Natural Resources PXD
0.66% New $106,590 1,000,000 36 Murphy Oil Corporation MUR
0.64% New $104,213 1,750,000
37 Randgold Resources Ltd. GOLD
0.57% Unchanged $92,317 930,502 38 CAESARS ENTERTAINMENT CZR
0.53% Unchanged $85,620 12,372,835
39 WP CAREY & CO LLC WPC
0.51% New $83,563 1,602,360 40 Gold Fields Ltd. GFI
0.50% Unchanged $81,705 6,541,600
41 Capital One Warrants COF/WS
0.47% Cut -3% $76,862 3,632,434 42 NRG Energy, Inc. NRG
0.44% New $71,251 3,099,206
43 Mead Johnson Nutrition MJN
0.41% New $65,890 1,000,000 44 Alpha Natural Resources ANR
0.36% New $58,440 6,000,000
45 Fidelity National Financial FNF
0.36% New $58,875 2,500,000
30
Fourth Quarter 2012 Portfolio: …Continued
Paulson & Co
Q4 2012 www.hedgefundwisdom.com
Next Page: Tiger Management
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
46 Cascade Corp. CASC
0.36% New $57,870 900,000 47 Boise Inc. BZ
0.34% Unchanged $55,780 7,016,300
48 RESOLUTE FOREST RFP
0.34% Added 27% $55,619 4,200,807 49 Agnico-Eagle Mines Ltd. AEM
0.33% Unchanged $53,331 1,016,600
50 Jazz Pharmaceuticals, Inc. JAZZ
0.33% Unchanged $53,250 1,000,000 51 Leap Wireless International LEAP
0.32% Added 11% $51,870 7,800,000
52 TNS Inc. TNS
0.29% New $47,679 2,300,000 53 American Capital, Ltd. ACAS
0.28% Cut -30% $45,494 3,784,700
54 Allied Nevada Gold Corp. ANV
0.28% Unchanged $45,473 1,509,221 55 IAMGOLD Corp. IAG
0.27% Unchanged $44,525 3,881,900
56 POST HOLDINGS INC POST
0.26% Unchanged $42,138 1,230,300 57 NATIONAL BANK NBHC
0.25% New $41,306 2,175,155
58 Barrick Gold Corporation ABX
0.20% Unchanged $32,034 915,000 59 XL Group plc XL
0.18% Unchanged $30,072 1,200,000
60 Genworth Financial Inc. GNW
0.18% New $29,289 3,900,000 61 Crexus Investment Corp. CXS
0.18% New $29,400 2,400,000
62 Clearwire Corporation CLWR
0.18% New $29,487 10,203,100 63 FelCor Lodging Trust Inc. FCH
0.14% Unchanged $23,350 5,000,000
64 Howard Hughes Corp HHC
0.14% Unchanged $23,001 315,000 65 Radian Group Inc. RDN
0.13% New $21,566 3,529,700
66 InternationalTowerHillMines THM
0.12% Unchanged $19,421 8,949,654 67 RBS Preferred M RBS-PM
0.12% Unchanged $18,864 835,051
68 STATE BANK FINANCIAL STBZ
0.12% Unchanged $20,044 1,262,200 69 RBS Preferred N RBS-PN
0.11% Unchanged $18,477 820,490
70 RBS Preferred R RBS-PR
0.09% Unchanged $14,014 623,968 71 RBS Preferred Q RBS-PQ
0.09% Unchanged $14,204 617,578
72 RBS Preferred P RBS-PP
0.08% Unchanged $13,446 602,433 73 Prestige Brands Holdings PBH
0.08% Cut -24% $13,020 650,000
74 NOVACOPPER INC NCQ
0.07% Unchanged $10,659 5,921,608 75 RBS Preferred S RBS-PS
0.07% Unchanged $11,742 510,524
76 Bank of America Warrants BAC/WS/B
0.06% Cut -3% $9,096 11,812,853 77 RBS Preferred T RBS-PT
0.06% Unchanged $9,712 406,180
78 STRATEGIC HOTELS SGCHZ
0.06% Unchanged $10,496 1,640,000 79 Kinder Morgan Warrants KMIIV
0.06% Unchanged $9,494 2,511,670
80 SuperMedia Inc. SPMD
0.05% Unchanged $8,918 2,607,504 81 Fairpoint Communications FRP
0.05% Unchanged $7,938 998,895
82 Dex One Corporation DEXO
0.04% Unchanged $5,809 3,676,394 83 Sunstone Hotel Investors Inc. SHO
0.02% Unchanged $2,640 246,458
84 DUFF & PHELPS CORP DUF
0.02% New $4,002 256,200 85 Hartford Financial Warrants HIG/WS
0.01% Unchanged $1,348 100,000
86 Pinnacle Entertainment Inc. PNK
0.01% New $1,995 126,000 87 Robbins & Myers Inc. RBN
Sold
88 AMERIGROUP Corporation AGP
Sold 89 Ryman Hospitality GET
Sold
90 GENON ENERGY INC GEN
Sold 91 Cooper Industries plc CBE
Sold
92 Par Pharmaceutical PRX
Sold
31
While the third quarter marked a time of little portfolio activity for Tiger Management, the fourth quarter was exactly the opposite. Tiger made numerous moves, the most notable of which would be a brand new position in ADT (ADT), which is now their largest position. ADT was spun-off from the Tyco conglomerate and sells home security and monitoring systems. A highly fragmented industry, ADT is one of the few companies that has any sizable market share. Corvex Capital, an investment firm run by former Carl Icahn protégé Keith Meister, has taken an activist position in ADT and is looking for the company to improve its business and create more shareholder value. He feels that ADT has a defensive and predictable business model with consistent cash flows. Meister likes the underappreciated secular growth tailwinds and points to the shares mispricing after the spin mainly because the company doesn’t have many public comps. Another reason for the mispricing he says is the poor capital structure, a central part of his investment thesis. Pointing to balance sheet
Key Takeaways
New Posit ions: ADT (ADT) Berkshire Hathaway (BRK-B) Capital One (COF) Valeant Pharmaceuticals (VRX) Fleetcor Technologies (FLT) Dollar Tree Stores (DLTR) Davita (DVA) Chicago Bridge & Iron (CBI) Sold Out: Market Vectors Gold Miners (GDX) Barrick Gold (ABX) JPMorgan Chase (JPM) Cablevision (CVC)
optionality, he thinks ADT should increase leverage and improve capital allocation. He calls ADT an “equity shrink story waiting to happen.” As you’ll see throughout this issue, ADT popped up on a number of hedge fund portfolio sheets in the fourth quarter. Some received the shares from the Tyco spin, while others purchased post-spin.
Aside from that purchase, Tiger also started a position in Berkshire Hathaway (BRK-B) that is intriguing given that Tiger usually likes secular theme plays versus value conglomerates. The hedge fund also drastically ramped up its position in Carnival (CCL). The cruise line recently saw one of its ships catch fire and canceled 12 cruises so it will be interesting to see the impact that has on potential travelers going forward and if it influences Tiger’s position sizing. The hedge fund also initiated a new holding in credit card company Capital One (COF). This is largely seen as an economic recovery play as it benefits from increased consumer spending. The company is profiled later in the equity analysis section. Tiger also owns payment processors Mastercard (MA) and Visa (V), which have been longstanding positions. Tiger slightly reduced each holding during the fourth quarter.
As for how Julian Robertson invests, he says he focuses on management and notes that you have to give them time. He’s a long-term investor and doesn’t focus on short-term gyrations.
View Tiger Management’s Updated Portfolio on the Next Page
Q4 2012 www.hedgefundwisdom.com
Tiger Management Julian Robertson
Mentored the ‘Tiger Cub’ hedge funds & seeded other talented up & coming
managers
Featured in the book A Tiger in the Land of Bulls and Bears
32
Tiger Management Fourth Quarter 2012 Portfolio:
Next Page: Soros Fund Management
Q4 2012 www.hedgefundwisdom.com
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 ADT CORP ADT
4.25% New $24,152 519,500 2 Mastercard Inc MA
4.20% Cut -14% $23,865 48,578
3 Ocwen Financial Corp. OCN
4.14% Cut -11% $23,524 680,091 4 Liberty Global Inc. LBTYA
3.96% Cut -12% $22,470 356,895
5 Apple Inc. AAPL
3.95% Cut -58% $22,418 42,125 6 Google Inc. GOOG
3.59% Cut -21% $20,373 28,800
7 Berkshire Hathaway Inc. BRK-B
3.54% New $20,093 224,000 8 QUALCOMM Inc QCOM
3.45% Cut -7% $19,587 316,630
9 Visa, Inc. V
3.44% Cut -17% $19,554 129,000 10 Carnival Corporation CCL
3.42% Added 5216% $19,449 528,950
11 Capital One Financial Corp. COF
3.37% New $19,117 330,000 12 Kinder Morgan Warrants KMIIV
3.36% Added 1% $19,108 5,054,954
13 AmericanInternationalGroup AIG
3.35% Added 3% $19,048 539,600 14 Charter Communications CHTR
3.31% Unchanged $18,786 246,400
15 Priceline.com Incorporated PCLN
3.28% Added 26% $18,612 30,000 16 HCA HLDGS INC COM HCA
3.21% Added 8% $18,217 603,800
17 WuXi PharmaTech WX
3.20% Unchanged $18,182 1,154,418 18 RYMAN HOSPITALITY RHP
3.11% New $17,653 459,000
19 Valeant Pharmaceuticals VRX
3.09% New $17,572 294,000 20 VeriSign Inc. VRSN
3.01% Added 37% $17,120 441,000
21 Fleetcor Technologies FLT
2.85% New $16,186 301,700 22 DOLLAR TREE STORES DLTR
2.76% New $15,647 385,763
23 SouFun Holdings Ltd. SFUN
2.67% Added 1113% $15,162 606,461 24 DaVita, Inc. DVA
2.66% New $15,132 136,900
25 CHICAGO BRIDGE & IRON CBI
2.52% New $14,299 308,500 26 Dole Food Company Inc. DOLE
2.47% New $14,005 1,221,034
27 TripAdvisor Inc TRIP
2.44% Added 89% $13,834 330,000 28 SIRIUS XM Radio Inc. SIRI
2.27% Cut -24% $12,896 4,462,300
29 51job Inc. JOBS
2.27% New $12,885 275,623 30 Junior Gold Miners ETF GDXJ
2.06% Unchanged $11,694 590,900
31 Express-1 Expedited XPO
1.82% Unchanged $10,341 595,000 32 Ryanair Holdings plc RYAAY
0.74% Unchanged $4,217 123,022
33 LCA-Vision Inc. LCAV
0.62% Unchanged $3,496 1,226,777 34 Callidus Software Inc. CALD
0.60% Unchanged $3,427 754,900
35 Suncor Energy Inc. SU
0.40% Unchanged $2,259 68,500 36 The Goldman Sachs Group GS
0.34% Unchanged $1,958 15,350
37 Sealed Air Corporation SEE
0.15% Unchanged $851 48,600 38 Nexen Inc. NXY
0.13% Unchanged $753 27,950
39 Cablevision Systems CVC
Sold 40 Cardiome Pharma Corp. CRME
Sold
41 Gold Miners ETF GDX
Sold 42 JPMorgan Chase & Co. JPM
Sold
43 AutoNavi Holdings Limited AMAP
Sold 44 Sherwin-Williams Co. SHW
Sold
45 Golar LNG Ltd. GLNG
Sold 46 Barrick Gold Corporation ABX
Sold
47 SeaChange International SEAC
Sold 48 The Blackstone Group BX
Sold
33
Before viewing Soros Fund Management’s latest portfolio activity, it’s worth reiterating that since the fund holds so many different positions, the newsletter only tracks the upper echelon of the portfolio, i.e. around the top 90 positions. To illustrate the size of the portfolio turnover, here’s a snapshot of the overall activity over the past quarter just in US markets: Soros Fund made 71 new purchases, added on to 44 existing positions, sold completely out of 70 stakes, and reduced positions in 39 holdings. After all, the hedge fund has turned into a family office to manage George Soros’ fortune of billions and holds all different types of positions in various asset classes all across the world. In fact, it’s been reported that Soros recently made $1 billion dollars betting against the Japanese Yen. So when viewing Soros’ portfolio on the next page, keep in mind this is only one small slice of the overall assets under management pie. Not to mention, many positions Soros Fund holds in the US are actually notes or convertible bonds rather than equity stakes.
So, the biggest takeaway from their portfolio
Key Takeaways
New Posit ions: Morgan Stanley (MS) Citrix (CTXS) Anadarko Petroleum (APC) Citigroup (C) Calls Plains Exploration (PXP) Ford (F) Invesco (IVZ) Sold Out: LinkedIn (LNKD) Dish Network (DISH) Target (TGT) Denbury Resources (DNR) Express Scripts (ESRX) Orbital Sciences
by far is that they added to their pre-existing stake in Citigroup (C) by 435% during the quarter as it’s now their fourth largest disclosed holding and largest pure equity stake in US markets. As detailed earlier in this issue, David Tepper also fancies this financial stock, noting that there’s great value in the company’s international operations. The second biggest takeaway from Soros Fund’s activity is that they reduced their position in American International Group (AIG) by 41% during Q4. Even after the reduction, it’s still their fourth largest US long, worth over $312 million. AIG has been a hedge fund favorite the past few quarters as the government has completely exited the stake it took in the company during the financial crisis bailout. Soros Fund does seem to be bullish on moneycenter banks because in addition to the Citigroup stake, they also added significantly to their position in JPMorgan Chase (JPM) as well, ramping up the stake to the tune of 162%. And sticking with financials in general, they also initiated a position in another financial: Morgan Stanley (MS). The thesis on this name was outlined earlier in this issue in Dan Loeb’s section (Third Point). And while so many investors were reducing their stakes in technology giant Apple (AAPL) during the quarter, Soros Fund utilized the opportunity as a chance to more than double their share count.
To learn from this great investor, it’s definitely worth checking out George Soros’ best investment advice.
View Soros Fund Management’s Updated Portfolio on the Next Page
Q4 2012 www.hedgefundwisdom.com
Soros Fund Mgmt George Soros
Famously broke the Bank of England with a huge bet against the British
Pound
Renowned global macro hedge fund
Author of The Alchemy of Finance
34
Soros Fund Mgmt Fourth Quarter 2012 Portfolio:
Continued on Next Page…
Q4 2012 www.hedgefundwisdom.com
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 Micron Technology Inc. NOTE MU
9.76% Unchanged $815,729 819,005,000 2 Lucent Technology NOTE LU
7.32% Added 11% $611,845 607,290,000
3 WebMD Health Corp. NOTE WBMD
4.22% Unchanged $352,492 386,530,000 4 Citigroup, Inc. C
3.85% Added 436% $321,436 8,125,251
5 American International Group AIG
3.74% Cut -42% $312,540 8,853,849 6 Digital River Inc. NOTE DRIV
3.23% Added 7% $270,412 274,518,000
7 CIENA Corp. NOTE CIEN
2.94% Added 2% $245,660 252,552,000 8 Pioneer Natural Resources Co. PXD
2.66% Added 50% $222,634 2,088,697
9 ADECOAGRO S.A. AGRO
2.63% Unchanged $219,731 25,911,633 10 Rovi Corporation NOTE ROVI
2.18% Added 12% $181,912 181,912,000
11 Johnson & Johnson JNJ
2.17% Added 1% $181,491 2,589,022 12 Hologic Inc. NOTE HOLX
1.82% Added 1% $151,745 152,278,000
13 Charter Communications, Inc CHTR
1.77% Cut -3% $148,247 1,944,480 14 Motorola Solutions, Inc. MSI
1.72% Cut -10% $143,552 2,578,166
15 NetApp, Inc. NTAP
1.63% Cut -33% $135,879 4,050,033 16 Google Inc. GOOG
1.60% Cut 0% $133,887 188,740
17 Quantum Corp. NOTE QTM
1.47% Unchanged $122,859 130,980,000 18 EQT Corporation EQT
1.46% Added 85% $122,211 2,072,079
19 Delta Air Lines Inc. DAL
1.36% Added 55% $114,089 9,611,500 20 JPMorgan Chase & Co. JPM
1.35% Added 162% $112,959 2,569,000
21 SPDR S&P 500 SPY PUT 1.28% Cut -11% $106,890 750,000 22 General Electric Co. GE
1.23% Cut -53% $102,911 4,902,890
23 JDS Uniphase NOTE JDSU
1.23% Cut -33% $103,208 103,270,000 24 Acacia Research Corporation ACTG
1.22% Added 2% $101,976 3,975,645
25 Apple Inc. AAPL
1.17% Added 117% $98,065 183,976 26 SPDR Gold Shares GLD
1.16% Cut -55% $97,206 600,000
27 Shutterfly, Inc. SFLY
1.09% Unchanged $91,006 3,046,700 28 CF Industries Holdings, Inc. CF
1.09% Cut -42% $90,731 446,600
29 Wal-Mart Stores Inc. WMT
1.02% Cut -50% $85,288 1,250,000 30 SanDisk Corp. NOTE SNDK
1.00% Unchanged $83,511 83,737,000
31 Morgan Stanley MS
0.95% New $79,236 4,144,200 32 Capital One Financial Corp. COF
0.87% Added 110% $73,021 1,260,500
33 Gold Miners ETF GDX
0.85% Cut -34% $70,745 1,525,000 34 General Motors GM
0.80% Cut -43% $67,182 2,330,300
35 Citrix Systems, Inc. CTXS
0.75% New $62,462 950,000 36 The Home Depot, Inc. HD
0.70% Unchanged $58,758 950,000
37 Exar Corp. EXAR
0.68% Cut -5% $56,663 6,366,666 38 Anadarko Petroleum APC
0.67% New $56,153 755,655
39 Abbott Laboratories ABT
0.65% Add 440% $53,972 1,079,752 40 US Airways Group, Inc. LCC
0.64% Cut -37% $53,312 3,949,000
41 Constellation Brands Inc. STZ
0.63% Added 18% $53,014 1,498,000 42 Citigroup, Inc. C CALL 0.62% New $51,428 1,300,000 43 MANCHESTER UNITED PLC MANU
0.57% Cut -4% $47,731 3,397,257
44 Freeport-McMoRan FCX
0.56% Added 5% $46,666 1,364,508 45 PlainsExploration&Production PXP
0.54% New $44,734 953,000
35
Next Page: Bridger Management
Fourth Quarter 2012 Portfolio: …Continued
Soros Fund Mgmt
Q4 2012 www.hedgefundwisdom.com
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
46 SunTrust Banks, Inc. STI
0.51% Cut -62% $43,021 1,517,500 47 Macy's, Inc. M
0.50% Cut -10% $42,142 1,080,000
48 Ford Motor Co. F
0.49% New $40,598 3,135,000 49 Invesco Ltd. IVZ
0.48% New $39,944 1,531,000
50 Cognizant Technology CTSH
0.47% New $39,231 529,800 51 Costco Wholesale Corp COST
0.47% New $39,508 400,000
52 Junior Gold Miners ETF GDXJ
0.47% Cut -17% $39,567 1,998,350 53 Walt Disney Co. DIS
0.46% Unchanged $38,488 773,000
54 Churchill Downs Inc. CHDN
0.44% Added 28% $36,544 549,943 55 Extreme Networks Inc. EXTR
0.40% Added 4% $33,620 9,236,249
56 Newell Rubbermaid Inc. NWL
0.40% New $33,405 1,500,000 57 Mosaic Co. MOS
0.40% Added 172% $33,072 584,000
58 Aspen Technology Inc. AZPN
0.39% Cut -10% $32,241 1,166,447 59 DELPHI AUTOMOTIVE PLC DLPH
0.38% Cut -18% $31,761 830,341
60 Loral Space & Comm LORL
0.36% Added 24% $30,177 552,085 61 Spreadtrum Communications SPRD
0.35% Added 4% $28,917 1,643,000
62 Qlik Technologies, Inc. QLIK
0.33% Added 43% $27,616 1,271,432 63 ADT CORP ADT
0.32% New $26,732 575,000
64 Kraft Foods Group, Inc. KRFT
0.32% New $27,106 596,133 65 ClickSoftware Technologies CKSW
0.30% Added 2% $25,370 3,016,666
66 General Motors Convertible GM/PB
0.29% Unchanged $24,437 550,700 67 American Express Company AXP
0.29% New $24,429 425,000
68 DIRECTV DTV
0.28% Added 18% $23,748 473,453 69 TURQUOISE HILL TRQ
0.28% Unchanged $23,819 3,130,000
70 PNC Financial Services PNC
0.26% New $21,604 370,500 71 SPDR S&P 500 SPY CALL 0.25% Added 106% $20,523 144,000 72 Cadence Design NOTE CDNS
0.25% Unchanged $21,013 21,000,000
73 Visteon Corp VC
0.24% Cut -9% $20,148 374,350 74 NRG Energy, Inc. NRG
0.24% New $19,912 866,137
75 Arch Coal Inc. ACI
0.23% New $18,990 2,594,200 76 Caesars Entertainment CZR
0.22% Added 144% $18,493 2,672,332
77 CEMEX, S.A.B. de C.V. CX
0.22% Unchanged $18,753 1,900,000 78 Mondelez International MDLZ
0.22% Added 35% $18,591 729,900
79 Energen Corp. EGN
0.21% New $17,413 386,173 80 National Fuel Gas Co. NFG
0.18% Add 209% $14,700 290,000
81 ON Semiconductor Corp. ONNN
0.18% New $15,087 2,140,000 82 Carter's, Inc. CRI
0.17% Added 34% $14,191 255,000
83 Halliburton Company HAL
0.16% New $13,761 396,700 84 Petroleo Brasileiro PBR CALL 0.16% New $13,629 700,000 85 Peabody Energy Corp. BTU
0.16% Cut -89% $13,305 500,000
86 BB & T Corp. BBT
0.16% New $13,129 451,000 87 Pepsico, Inc. PEP CALL 0.16% New $13,686 200,000 88 Pepsico, Inc. PEP
0.15% Added 5% $12,215 178,500
89 United Continental Holdings UAL
0.15% Added 8% $12,880 550,900 90 TripAdvisor Inc TRIP
0.15% Cut -21% $12,309 293,344
36
Robert Mignone’s Bridger Management has typically focused on healthcare plays, but this quarter none of their top five holdings are from that sector. However, recent portfolio activity in the quarter brought two healthcare stocks awfully close to cracking the top five. For-profit hospitals were by far the biggest bet made by Bridger during the fourth quarter as they added to their position in Tenet Healthcare (THC) by 425% and HCA (HCA) by 221%. These are now their sixth and seventh largest positions, respectively. In general, for-profit hospitals have been accumulated by hedge funds over the past quarter, with the majority of managers buying the big players THC and HCA. While President Obama saw the Affordable Care Act
Key Takeaways
New Posit ions: United Rentals (URI) Unitedhealth (UNH) Priceline.com (PCLN) Cemex (CX) Starbucks (SBUX) Equinix (EQIX) Pactera (PACT) Idenix Pharmaceuticals (IDIX) Isis Pharmaceuticals (ISIS) Sold Out: Apple (AAPL) Boston Beer (SAM) Monsanto (MON) Pinnacle Entertainment (PNK) Popular (BPOP) Charles River (CRL) Acorda Therapeutics (ACOR) BPZ Resources (BPZ) iStar Financial (SFI)
upheld by the Supreme Court, there was still speculation as to Obamacare’s future given that the presidential election was right around the corner at the time. When Obama was re-elected, shares of the for-profit hospitals spiked higher the day after. Past issues of the newsletter have highlighted Larry Robbins’ thesis on for-profit hospitals as his hedge fund Glenview Capital has nailed this trade and profited handsomely from it. While he owns a myriad of hospital stocks, his largest position is in Tenet, followed by HCA.
Turning to some of Bridger’s other key portfolio maneuvers, Mignone started a brand new position in United Rentals (URI). This company was featured in the equity analysis section of a past Hedge Fund Wisdom issue for its secular tailwinds. It’s also worth pointing out that Mignone’s firm sold almost 30% of its stake in CareFusion (CFN). This is the second quarter in a row they’ve made such a sale. The newsletter has flagged this name over the past few issues as hedge funds that previously held a long-term position have been selling (Greenlight Capital among others). While Bridger still continues to own it, it’s a much smaller position for them than it used to be. Apart from that, the other takeaway from Bridger’s equity book is that they over doubled their position in Herbalife (HLF), presumably taking advantage of the swoon in shares that was caused by Bill Ackman’s presentation on shorting the company.
View Bridger Management’s Updated Portfolio on the Next Page
Q4 2012 www.hedgefundwisdom.com
Bridger Management Roberto Mignone
Typically focuses on the healthcare sector
Known for his sleuthing abilities on
the short side
37
Bridger Management Fourth Quarter 2012 Portfolio:
Continued on next page…
Q4 2012 www.hedgefundwisdom.com
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 General Motors GM
5.50% Cut -9% $77,120 2,675,000 2 Morgan Stanley MS
5.46% Cut -22% $76,480 4,000,000
3 TripAdvisor Inc TRIP
5.38% Added 14% $75,456 1,800,000 4 Assured Guaranty Ltd. AGO
4.89% Unchanged $68,529 4,815,837
5 Google Inc. GOOG
4.69% Cut -26% $65,786 93,000 6 Tenet Healthcare Corp. THC
4.63% Added 425% $64,940 2,000,000
7 HCA HLDGS INC COM HCA
4.14% Added 221% $58,077 1,925,000 8 Gilead Sciences Inc. GILD
3.93% Added 3% $55,088 750,000
9 Cott Corporation COT
3.79% Unchanged $53,141 6,617,855 10 Facebook, Inc. FB
3.31% Added 24% $46,451 1,745,000
11 Allergan Inc. AGN
3.31% Added 0% $46,406 505,900 12 United Rentals, Inc. URI
3.30% New $46,206 1,015,063
13 Rent-A-Center Inc. RCII
3.28% Added 155% $46,042 1,340,000 14 VeriSign Inc. VRSN
3.21% Cut -16% $45,031 1,160,000
15 Wright Medical Group WMGI
3.18% Unchanged $44,603 2,124,983 16 Shuffle Master Inc. SHFL
2.84% Added 3% $39,875 2,750,000
17 CareFusion Corporation CFN
2.75% Cut -29% $38,583 1,350,000 18 Unitedhealth Group, Inc. UNH
2.71% New $37,968 700,000
19 Eli Lilly & Co. LLY
2.64% Added 88% $36,990 750,000 20 DIRECTV DTV
2.59% Cut -24% $36,366 725,000
21 Alnylam Pharmaceuticals ALNY
2.57% Added 22% $36,010 1,973,155 22 Forest Laboratories Inc. FRX
2.50% Unchanged $35,094 993,603
23 Priceline.com PCLN
2.48% New $34,742 56,000 24 CEMEX, S.A.B. de C.V. CX
2.17% New $30,350 3,075,000
25 Starbucks Corp. SBUX
2.09% New $29,298 546,298 26 Herbalife Ltd. HLF
1.96% Added 149% $27,505 835,000
27 Ironwood Pharma IRWD
1.49% Unchanged $20,823 1,879,375 28 Equinix, Inc. EQIX
1.47% New $20,620 100,000
29 Centene Corp. CNC
1.24% Cut -6% $17,425 425,000 30 PACTERA TECH PACT
1.17% New $16,338 2,057,637
31 Idenix Pharmaceuticals IDIX
1.02% New $14,308 2,950,000 32 Endologix Inc. ELGX
0.76% Unchanged $10,680 750,000
33 Bank of America Warrant BAC/WS/A
0.73% Unchanged $10,299 1,900,700 34 Pharmacyclics Inc. PCYC
0.60% Unchanged $8,378 145,000
35 Response Genetics, Inc RGDX
0.59% Unchanged $8,340 6,000,000 36 Casella Waste Systems CWST
0.56% Unchanged $7,856 1,793,507
37 Isis Pharmaceuticals, Inc. ISIS
0.41% New $5,742 550,000 38 Rubicon Minerals Corp RBY
0.40% Unchanged $5,557 2,170,000
39 VERASTEM, INC. VSTM
0.13% Unchanged $1,758 200,000 40 ANDINA ACQUISITION ANDAU
0.11% Unchanged $1,500 150,000
41 HISOFT TECHNOLOGY HSFT
Sold 42 Endeavour Silver Corp. EXK
Sold
43 Hyatt Hotels Corporation H
Sold 44 BPZ Resources NOTE BPZ
Sold
45 Avis Budget Group, Inc. CAR
Sold
38
Bridger Management
Next Page: Omega Advisors
Fourth Quarter 2012 Portfolio: …Continued
Q4 2012 www.hedgefundwisdom.com
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
46 Boston Beer Co. Inc. SAM
Sold 47 Apple Inc. AAPL
Sold
48 Monsanto Co. MON
Sold 49 iStar Financial Inc. SFI
Sold
50 Pinnacle Entertainment PNK
Sold 51 Popular Inc. BPOP
Sold
52 ARCOS DORADOS ARCO CALL
Sold 53 Charles River Labs CRL
Sold
54 DexCom, Inc. DXCM
Sold 55 Acorda Therapeutics ACOR
Sold
56 BPZ Resources, Inc. BPZ
Sold
39
Lee Cooperman’s Omega Advisors made some intriguing portfolio moves in the fourth quarter. One of the biggest was his sale of Apple (AAPL), previously his fifth largest position. In a recent interview, he said he feels that competitor Samsung is pressuring Apple and he was also frustrated with the company’s large cash position not being returned to shareholders. Cooperman prefers investing in Qualcomm (QCOM), a chipmaker that is not tied to just Apple and instead benefits from the rise of 3G/4G smartphones. He also likes Google (GOOG).
In other moves, Omega Advisors also bought shares of Freeport McMoran (FCX). Cooperman says he took advantage of the dip in shares after the company announced its acquisition of McMoRan Exporation (MMR), another company Cooperman has a stake in. He’s labeled FCX as one of his top picks for 2013. Last quarter’s newsletter flagged
Key Takeaways
New Posit ions: SandRidge Energy (SD) Freeport McMoran (FCX) Facebook (FB) Harbinger Group (HRG) VeriFone Systems (PAY) Crocs (CROX) Linnco (LNCO) Merck (MRK) Sold Out: Apple (AAPL) CVS Caremark (CVS) Range Resources (RRC) McClatchy (MNI) McDermott (MDR) Sunoco (SUN) Vodafone (VOD)
Leon Cooperman
View Omega Advisors’ Updated Portfolio on the Next Page
Has returned 16% annualized over 18 years
Prior to founding Omega, he spent 25
years at Goldman Sachs and was Chief Executive Officer of Goldman’s
Asset Management division
Cooperman’s pick of MMR at the Great Investors’ Best Ideas conference and the company was bought out soon after. Right after the buyout was announced, Cooperman added to his MMR stake.
In the fourth quarter, Cooperman also initiated a brand new position in SandRidge Energy (SD). The natural gas company has been under siege from activist investor TPG-Axon Capital. Omega jumped in with a pretty sizable stake worth $154 million as it’s now their seventh largest US listed long. One other buy worth drawing attention to is Express Scripts (ESRX). Omega already owned a pre-existing position, but added to it during the quarter (+38%). Numerous other funds profiled in HFW were also out buying shares.
Looking at the bigger picture for equities as a whole, the fund manager said that the Federal Reserve’s quantitative easing has made stocks an extremely attractive investment, especially in comparison to bonds with low yields. In terms of foreign positions, Cooperman revealed in a recent interview that he likes Qualicorp (a Brazilian healthcare play) and Tetragon Financial Group. Additionally, his hedge fund has disclosed a new position in London listed Monitise per trading on January 10th. Omega owns 5.65% of Monitise’s voting rights.
To learn from this great investor, be sure to check out his list of 14 attributes of an outstanding analyst or portfolio manager.
Q4 2012 www.hedgefundwisdom.com
Omega Advisors
40
Omega Advisors Fourth Quarter 2012 Portfolio:
Continued on next page…
Q4 2012 www.hedgefundwisdom.com
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 Sprint Nextel Corp. S
5.83% Added 31% $317,625 56,018,527 2 AmericanInternationalGroup AIG
5.05% Cut -3% $275,008 7,790,600
3 SLM Corporation SLM
4.89% Cut 0% $266,055 15,531,524 4 SIRIUS XM Radio Inc. SIRI
3.79% Added 12% $206,575 71,479,203
5 KINDER MORGAN KMI
3.25% Added 7% $176,691 5,001,159 6 Atlas Pipeline Partners LP APL
2.91% Added 0% $158,259 5,012,951
7 SandRidge Energy, Inc. SD
2.84% New $154,804 24,378,545 8 Linn Energy, LLC LINE
2.76% Cut -9% $150,534 4,271,688
9 QUALCOMM Incorporated QCOM
2.72% Cut 0% $147,981 2,392,200 10 McMoRan Exploration Co. MMR
2.69% Added 25% $146,238 9,111,400
11 KKR FINANCIAL CORP. KFN
2.69% Unchanged $146,608 13,883,323 12 Express Scripts Inc. ESRX
2.65% Added 38% $144,202 2,670,400
13 Transocean Ltd. RIG
2.56% Added 2% $139,140 3,115,545 14 Atlas Energy, L.P. ATLS
2.48% Added 1% $135,266 3,893,671
15 DISH NETWORK DISH
2.47% Cut -18% $134,581 3,697,271 16 Halliburton Company HAL
2.39% Added 15% $130,344 3,757,400
17 NYSE Euronext, Inc. NYX
2.24% Add 203% $121,735 3,859,699 18 Motorola Solutions, Inc. MSI
2.11% Added 2% $114,745 2,060,800
19 Freeport-McMoRan FCX
1.95% New $106,225 3,106,000 20 Williams Companies, Inc. WMB
1.90% Added 10% $103,671 3,166,508
21 XL Group plc XL
1.86% Cut 0% $101,075 4,033,337 22 MetLife, Inc. MET
1.82% Added 15% $99,202 3,011,585
23 ENERGY XXI EXXI
1.72% Cut 0% $93,825 2,916,536 24 Humana Inc. HUM
1.63% Added 4% $88,965 1,296,300
25 Unitedhealth Group, Inc. UNH
1.60% Cut -18% $87,231 1,608,248 26 Facebook, Inc. FB
1.55% New $84,153 3,161,300
27 ALTISOURCE PORTFOLIO ASPS
1.54% Cut -28% $83,600 964,747 28 Boston Scientific Corp BSX
1.53% Added 1% $83,220 14,523,500
29 Watson Pharmaceuticals Inc. WPI
1.46% Cut 0% $79,722 927,000 30 WellPoint Inc. WLP
1.43% Cut 0% $78,107 1,282,127
31 Kohlberg Kravis Roberts KKR
1.39% Added 2% $75,884 4,982,557 32 Capital One Financial Corp. COF
1.33% Added 1% $72,378 1,249,400
33 ETRADE Financial ETFC
1.31% Added 34% $71,160 7,950,880 34 Denbury Resources Inc. DNR
1.24% Added 54% $67,469 4,164,727
35 Phillips-Van Heusen Corp. PVH
1.13% Cut -19% $61,737 556,135 36 Polycom, Inc. PLCM
1.09% Added 46% $59,228 5,662,325
37 ATLAS RESOURCES ARP
1.09% Added 73% $59,492 2,647,635 38 Western Union Co. WU
1.07% Cut -3% $58,032 4,263,913
39 Chimera Investment CIM
1.06% Add 2219% $57,508 22,033,580 40 Wells Fargo & Company WFC
1.04% Added 18% $56,636 1,657,000
41 Eastman Chemical Co. EMN
0.99% Cut 0% $54,018 793,800 42 Atmel Corporation ATML
0.86% Added 116% $46,664 7,124,300
43 Google Inc. GOOG
0.86% Cut 0% $46,896 66,295 44 Harbinger Group Inc. HRG
0.71% New $38,450 5,000,000
45 VeriFone Systems, Inc PAY
0.69% New $37,346 1,258,273
41
Omega Advisors Fourth Quarter 2012 Portfolio: …Continued
Q4 2012 www.hedgefundwisdom.com
Next Page: Coatue Management
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
46 Given Imaging Ltd. GIVN
0.68% Added 0% $36,775 2,105,061 47 Citigroup, Inc. C
0.66% Added 7% $35,960 909,000
48 Validus Holdings, Ltd. VR
0.63% Cut 0% $34,473 996,896 49 Loral Space & Comm LORL
0.61% Cut 0% $32,998 603,700
50 CROCS Inc. CROX
0.57% New $30,929 2,149,340 51 WPX ENERGY INC WPX
0.57% Added 5% $31,296 2,103,224
52 TiVo Inc. TIVO
0.54% Cut 0% $29,414 2,389,400 53 LINNCO LLC LNCO
0.45% New $24,615 681,113
54 Gannett Co., Inc. GCI
0.45% Cut -69% $24,317 1,350,200 55 Merck & Co. Inc. MRK
0.44% New $24,155 590,000
56 THL Credit, Inc. TCRD
0.33% Cut -3% $18,211 1,231,307 57 Family Dollar Stores Inc. FDO
0.32% Added 30% $17,165 270,700
58 Las Vegas Sands Corp LVS
0.23% New $12,260 265,600 59 Ocwen Financial Corp. OCN
0.19% Unchanged $10,111 292,300
60 McMoRan Exploration Co. MMR CALL 0.15% New $8,025 500,000 61 Resource America Inc. REXI
0.15% Unchanged $7,949 1,191,733
62 Center Bancorp Inc. CNBC
0.12% Unchanged $6,311 545,000 63 AG Mortgage Investment MITT
0.12% Unchanged $6,330 269,590
64 Aaltisource Residential RESI
0.10% New $5,305 334,912 65 BRE Properties Inc. BRE
0.09% New $4,912 96,633
66 Fortress Investment Group FIG
0.09% Added 148% $4,881 1,111,868 67 Resource Capital Corp. RSO
0.08% Unchanged $4,480 800,000
68 Broadridge Financial BR
0.07% Cut -86% $3,731 163,063 69 Newcastle Investment NCT
0.05% Unchanged $2,604 300,000
70 MDC Partners Inc. MDCA
0.04% Unchanged $2,260 200,000 71 GMX Resources Inc. GMXR
0.03% New $1,384 2,768,657
72 Two Harbors Investment TWO
0.02% Unchanged $1,108 100,000 73 JPMorgan Chase & Co. JPM
0.02% Cut -95% $1,323 30,100
74 Apollo Investment AINV
0.02% Unchanged $1,254 150,000 75 KKR FINANCIAL NOTE KFN
0.02% Unchanged $919 600,000
76 Teekay LNG Partners LP. TGP
0.01% Unchanged $756 20,000 77 Crosstex Energy LP XTEX
0.01% Unchanged $336 23,100
78 McDermott Intl MDR
Sold 79 Sunoco Inc. SUN
Sold
80 Vodafone Group plc VOD
Sold 81 AUDIENCE INC ADNC
Sold
82 SPDR S&P 500 SPY
Sold 83 ACE Limited ACE
Sold
84 Apple Inc. AAPL
Sold 85 Ctrip.com Intl CTRP
Sold
86 Walgreen Co. WAG
Sold 87 CVS Caremark CVS
Sold
88 Lincoln National Corp. LNC
Sold 89 Range Resources RRC
Sold
90 The McClatchy Co MNI
Sold
42
Coatue Management is a quintessential TMT hedge fund (technology, media, telecom) and cable/broadband is one of the biggest themes in their portfolio. Liberty Global (LBTYA ~ European cable) is their fourth largest position. The company recently announced it was acquiring Virgin Media (VMED ~ UK cable). Coatue just so happens to own VMED as well. In fact, it’s their second largest holding. While their stakes in both companies were essentially unchanged in the fourth quarter, Coatue just filed a 13G with the SEC disclosing that they’ve just ramped up their position size in Liberty Global by another 23% as of February 5th. Founder Philippe Laffont is a big advocate of allocating a lot of capital to your best ideas and running a more concentrated portfolio. Once the VMED/LBTYA acquisition is completed, this will be quite a large position for Coatue. Their bet on cable is further amplified when you consider they also own Time Warner Cable (TWC ~ US cable). They originally purchased a big position in the third quarter and then they’ve now
Key Takeaways
New Posit ions: Netflix (NFLX) CBS (CBS) Charter Communications (CHTR) eBay (EBAY) Groupon (GRPN) Herbalife (HLF) Sold Out: Chipotle (CMG) H&R Block (HRB) Polo Ralph Lauren (RL) Best Buy (BBY) Intuit (INTU) Qualcomm (QCOM)
added to that position again in the fourth quarter by around 62%. It’s now their seventh largest holding. This quarter they also initiated a new position in Charter Communications (CHTR ~ US cable) as well.
Big media is the other big driver of Coatue’s portfolio. Their third largest position is now Time Warner (TWX). Last quarter’s issue flagged Coatue’s big new buy, as it was a consensus hedge fund addition then. They continued buying TWX in Q4, ratcheting up their stake an additional 202%. This stock saw a sizable amount of buying by hedge funds for the second consecutive quarter. Continuing with the media theme, Coatue also owns big pieces of News Corp (NWSA), Viacom (VIAB), and a new position in CBS (CBS).
Given Coatue’s expertise on technology, it should come as no surprise that they’re expanding their investing reach to non-public companies as well. It’s been revealed that the firm is launching a $300 million fund to invest in pre-IPO startup companies. Coatue is expanding their focus by establishing an office in California (Menlo Park) to operate out of. Philippe Laffont’s brother, Thomas Laffont, will head up the operation. In addition to Coatue’s new fund, they’re also able to invest ~10% of their existing hedge fund capital in private companies. So theoretically, they could easily invest $1 billion in startups should they so choose. Coatue has already completed one private funding transaction: Box.com.
View Coatue Management’s Portfolio on the Next Page
Q4 2012 www.hedgefundwisdom.com
Coatue Management Philippe Laffont
Manages a long/short fund focused on technology, media, & telecom
One of his mantras is “dare to be
different”
43
Coatue Management Fourth Quarter 2012 Portfolio:
Q4 2012 www.hedgefundwisdom.com
Continued on next page…
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 Equinix, Inc. EQIX
14.13% Unchanged $858,509 4,163,477 2 Virgin Media, Inc. VMED
9.74% Unchanged $592,024 16,109,508
3 Time Warner Inc. TWX
7.99% Added 202% $485,500 10,150,523 4 Liberty Global Inc. LBTYA
7.11% Added 6% $432,164 6,864,097
5 Apple Inc. AAPL
5.63% Cut -55% $342,111 642,857 6 Priceline.com Inc PCLN
5.35% Unchanged $325,082 523,997
7 Time Warner Cable TWC
5.34% Added 62% $324,774 3,341,645 8 Google Inc. GOOG
4.90% Cut -2% $297,567 420,661
9 News Corp. NWSA
4.73% Cut -11% $287,673 11,276,861 10 Viacom Inc VIAB
2.27% Added 41% $137,665 2,610,262
11 TripAdvisor Inc TRIP
2.26% Cut -45% $137,377 3,277,119 12 Informatica Corp INFA
2.25% Added 14% $136,941 4,516,513
13 Akamai Tech AKAM
2.22% Cut -32% $135,049 3,301,129 14 SIRIUS XM Radio SIRI
2.18% Cut -9% $132,347 45,794,813
15 VeriSign Inc. VRSN
2.07% Added 157% $125,529 3,233,605 16 Netflix, Inc. NFLX
1.95% New $118,296 1,277,633
17 CBS CORP CL B CBS
1.95% New $118,628 3,117,685 18 Hain Celestial HAIN
1.69% Unchanged $102,905 1,897,916
19 American Tower Corp. AMT
1.67% Cut -16% $101,514 1,313,752 20 LINKEDIN CORP LNKD
1.07% Cut -13% $64,993 566,041
21 Charter Communications CHTR
1.05% New $63,514 833,086 22 eBay Inc. EBAY
1.04% New $63,053 1,236,389
23 First Solar, Inc. FSLR
1.00% Cut -33% $60,622 1,964,696 24 NII Holdings Inc. NIHD
0.85% Unchanged $51,645 7,243,390
25 Atmel Corporation ATML
0.64% Unchanged $39,014 5,956,396 26 Joy Global, Inc. JOY
0.62% Unchanged $37,486 587,740
27 GROUPON INC GRPN
0.60% New $36,350 7,479,338 28 Silicon Laboratories SLAB
0.56% Unchanged $33,901 811,054
29 Amazon.com Inc. AMZN
0.52% Cut -84% $31,357 124,994 30 BlackBerry BBRY
0.50% Unchanged $30,313 2,553,791
31 Herbalife Ltd. HLF
0.46% New $27,999 850,000 32 SUPERVALU Inc. SVU
0.41% Added 116% $25,086 10,156,364
33 Baidu, Inc. BIDU
0.40% Cut -66% $24,603 245,314 34 Polycom, Inc. PLCM
0.35% Unchanged $21,438 2,049,497
35 F5 Networks, Inc. FFIV
0.31% New $18,711 192,600 36 Mellanox Technologies MLNX
0.29% New $17,613 296,610
37 Discovery Comm DISCA
0.28% New $16,837 265,238 38 Mastercard Incorporated MA
0.26% New $15,580 31,714
39 Visa, Inc. V
0.26% New $15,652 103,256 40 Facebook, Inc. FB
0.26% Cut -57% $15,972 600,000
41 Walt Disney Co. DIS
0.26% New $15,506 311,436 42 Ctrip.com International CTRP
0.26% New $15,705 693,079
43 Nokia Corporation NOK
0.25% Cut -58% $15,405 3,899,904 44 Digital Realty Trust DLR
0.25% New $15,282 225,100
45 AutoZone Inc. AZO
0.24% New $14,831 41,844
44
Coatue Management
Q4 2012 www.hedgefundwisdom.com
Next Page: Fairholme Capital
Fourth Quarter 2012 Portfolio: …Continued
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
46 YELP INC YELP
0.23% New $13,859 735,222 47 Pitney Bowes Inc. PBI
0.22% Unchanged $13,143 1,235,204
48 R.R. Donnelley & Sons RRD
0.22% Unchanged $13,363 1,486,394 49 Level 3 Communications LVLT
0.19% Unchanged $11,766 509,122
50 Synchronoss Tech SNCR
0.16% Unchanged $9,707 460,247 51 Logitech International SA LOGI
0.14% Unchanged $8,485 1,125,376
52 Liberty Global Inc. LBTYK
0.13% New $7,609 129,515 53 NutriSystem Inc. NTRI
0.10% Unchanged $5,951 728,383
54 STEC, Inc. STEC
0.08% Unchanged $4,930 1,000,000 55 WORKDAY, INC. WDAY
0.07% New $4,169 76,500
56 QuinStreet, Inc. QNST
0.06% Unchanged $3,539 526,593 57 Chipotle Mexican Grill CMG
Sold
58 H&R Block, Inc. HRB
Sold 59 Polo Ralph Lauren Corp. RL
Sold
60 Best Buy Co. Inc. BBY
Sold 61 Liquidity Services, Inc. LQDT
Sold
62 Intuit Inc. INTU
Sold 63 Molycorp, Inc. MCP
Sold
64 QUALCOMM Inc QCOM
Sold 65 Cliffs Natural Resources CLF
Sold
45
Bruce Berkowitz’s portfolio is the definition of concentrated. His largest position, American International Group (AIG), is now up to over 43% of his reported assets with a stake worth over $3 billion. He sees the company becoming a profitable insurance business, as they’re the price leader. His next largest position is Bank of America (BAC) and he noted in a recent interview that he’d actually like to add to that stake more, but mutual fund regulations prevent him from doing so (Fairholme’s primary investment vehicle is mutual fund FAIRX). He also hinted about transitioning to a different type of investment vehicle in the future that would allow him to more easily run concentrated positions, saying “stay tuned.” Talking about Bank of America, Berkowitz pointed out how a lot of people are fixated on the Countrywide problem (which BAC inherited by acquiring the company during the financial crisis), but he says great earnings are there and in the future the earnings power will grow as Countrywide’s problems subside. Fairholme’s third largest position is Sears Holdings (SHLD), which Berkowitz mainly views as a real estate play. This is really the only position he added to during the quarter.
On the selling side of his equity book, Berkowitz did make two significant moves by practically exiting Citigroup (C) and selling 71% of his holdings in CIT Group (CIT). And the only
Key Takeaways
New Posit ions: None Sold Out: General Motors (GM/WS/B) Warrants
position he did completely sell out of was a stake in General Motors warrants.
Berkowitz recently announced that the Fairholme Fund was closing to new investors, saying, “Less is more. If more money came in, I can’t buy more AIG because we’re so concentrated … so I do not want a lot of cash coming in that would potentially dilute those positions for existing shareholders.” His fund already has around a 20% cash position, as he likes to keep it on hand to take advantage of any potential future opportunities and in case investors get spooked and decide to redeem (something he’s dealt with before).
Berkowitz recently gave an insightful talk at the Columbia Investment Management Conference where he said it’s actually a disservice for him to spend time with clients because it takes time away from investment research. He likes to hustle as an investor, always reading company reports and listening to earnings calls. He also emphasized getting away from the Wall Street groupthink and that’s partially why he lives in Miami. The Fairholme man also gave a talk at the University of Miami where he touched on his investment approach. He said, “We buy that which is hated. When it’s hated, it’s usually cheap. We usually are too early, we suffer from premature accumulation… we want to make sure that when we invest in something, that there’s a big margin of safety.” He likes to focus on the balance sheet, pointing out that there’s more ways for companies to cheat on the income statement.
View Fairholme Capital’s Updated Portfolio on the Next Page
Q4 2012 www.hedgefundwisdom.com
Fairholme Capital Bruce Berkowitz
Named Morningstar’s Fund Manager of the Decade
A long-term investor who runs a highly
concentrated portfolio
View his checklist for investing
46
Next Page: Tiger Global
Fairholme Capital Fourth Quarter 2012 Portfolio:
Q4 2012 www.hedgefundwisdom.com
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 AmericanInternationalGroup AIG
43.63% Cut -1% $3,030,939 85,862,294 2 Bank of America Corporation BAC
16.78% Cut -2% $1,165,878 100,506,715
3 Sears Holdings Corporation SHLD
10.80% Added 7% $750,542 18,146,573 4 The St. Joe Company JOE
8.35% Cut -1% $579,759 25,119,555
5 Leucadia National Corp. LUK
6.14% Cut -2% $426,428 17,924,656 6 AIG Warrants AIG/WS
4.84% Cut -1% $335,986 24,346,799
7 MBIA Inc. MBI
4.80% Cut -4% $333,589 42,495,420 8 CIT Group, Inc. CIT
1.79% Cut -71% $124,546 3,223,229
9 Berkshire Hathaway Inc. BRK-B
1.01% Cut -5% $70,376 784,575 10 Bank of America Warrants BAC/WS/A
0.78% Added 0% $53,979 9,904,428
11 Jefferies Group Inc. JEF
0.38% Cut -17% $26,592 1,432,000 12 Wells Fargo Warrants WFC-WT
0.20% Unchanged $13,780 1,377,965
13 JPMorganChase Warrants JPM/WS
0.13% Cut -2% $8,934 753,300 14 Hartford Financial Warrants HIG/WS
0.10% Unchanged $7,069 524,400
15 Wells Fargo & Company WFC
0.10% Unchanged $6,901 201,900 16 Orchard Supply Hardware OSH
0.06% Cut -3% $4,477 604,143
17 Lincoln National Warrants LNC/WS
0.05% Unchanged $3,127 181,610 18 Citigroup, Inc. C
0.03% Cut -82% $2,269 57,360
19 Assured Guaranty Ltd. AGO
0.01% Unchanged $736 51,700 20 Berkshire Hathaway Inc. BRK-A
0.01% Unchanged $804 6
21 General Motors Warrants GM/WS/B
Sold
47
Tiger Global has become known for its investments in private technology companies as of late. And in the fourth quarter, they saw two of these positions come full circle. Tiger purchased stakes in both Facebook and LinkedIn, two of social media’s top online properties, back when they were both private companies. They reaped vast profits as valuations climbed and these companies eventually came public. And in the fourth quarter, Tiger Global’s hedge fund sold its stakes in both. Where Tiger decided to re-invest the proceeds, however, may surprise some people. Chase Coleman’s firm had previously owned a tiny stake in Groupon (GRPN), but decided to ramp up their stake dramatically at the beginning of November when shares cratered from $5.25 per share down to as low as $2.75 per share. Tiger amassed a position of 65 million shares and owns around 9.9% of the company. At one point, shares of GRPN were down
Key Takeaways
New Posit ions: Liberty Media (LMCA) Fleetcor Technologies (FLT) McGraw-Hill (MHP) Motorola Solutions (MSI) Pandora (P) VeriSign (VRSN) YY (YY) Fidelity National Information (FIS) First Solar (FLSR) News Corp (NWSA) Workday (WDAY) ~ IPO Sold Out: Facebook (FB) LinkedIn (LNKD) Google (GOOG) Ancestry.com ~ bought out
Chase Coleman
View Tiger Global’s Updated Portfolio on the Next Page
From 2001-2007, he returned 47% on average
Descendant of Peter Stuyvesant, the
man who built the ‘wall’ in Wall St
87% from their initial public offering (IPO) as numerous investors shorted the stock due to the company’s inability to establish a solid business model. GRPN started as a ‘daily deals’ company, offering ‘Groupons’ to its customers for discounts on products and services. This platform had little barriers to entry and competitors emerged such as Google Offers and LivingSocial (which Amazon acquired and has taken numerous write-downs on since). Groupon then entered the highly competitive payments industry when it launched ‘Breadcrumb,’ a point-of-sale system targeted at restaurants. The company also expanded with ‘Groupon Goods,’ where they sell physical items and hold the inventory. Some investors long the stock called for CEO and founder Andrew Mason to step down due to his apparent disregard for profitability.
So the question here is what does Tiger Global see in the name? Well, given their purchase price, valuation certainly had to come into play. Around that time, GRPN had around $1.2 billion in cash and a market cap of only $2.2 billion. Shares of GRPN have rallied ferociously from $2.60 up to their current levels of around $5.95.
Other notable portfolio activity from Tiger includes selling almost half of their Yahoo (YHOO) stake, over doubling their exposure to both Amazon.com (AMZN) and W.R. Grace (GRA), as well as starting brand new positions in Fleetcor Technologies (FLT), McGraw Hill (MHP), and Motorola Solutions (MSI). Last, but certainly not least, their new stake in Liberty Media (LMCA) was their largest buy in Q4 and is now their second largest position. The company just completed the spin-off of Starz (STRZA) in January.
Q4 2012 www.hedgefundwisdom.com
Tiger Global
48
Tiger Global Fourth Quarter 2012 Portfolio:
Q4 2012 www.hedgefundwisdom.com
Continued on next page…
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 Apple Inc. AAPL
10.37% Cut -19% $558,782 1,050,000 2 Liberty Media LMCA
7.16% New $385,733 3,325,000
3 YANDEX N V YNDX
6.12% Cut -35% $329,562 15,300,000 4 Mastercard Inc MA
6.07% Cut -19% $326,701 665,000
5 GROUPON INC GRPN
5.87% Add 4900% $315,900 65,000,000 6 Priceline.com Inc PCLN
5.83% Cut -36% $313,917 506,000
7 Amazon.com Inc. AMZN
5.78% Added 158% $311,079 1,240,000 8 Visa, Inc. V
5.57% Cut -30% $300,128 1,980,000
9 Yahoo! Inc. YHOO
5.17% Cut -44% $278,600 14,000,000 10 Baidu, Inc. BIDU
4.00% Unchanged $215,624 2,150,000
11 W.R. Grace & Co. GRA
3.53% Added 102% $189,925 2,825,000 12 Liberty Global Inc. LBTYK
3.16% Added 16% $170,375 2,900,000
13 Liberty Global Inc. LBTYA
2.69% Cut -63% $144,808 2,300,000 14 Fleetcor Technologies FLT
2.60% New $140,295 2,615,000
15 Burger King Worldwide BKW
2.20% Unchanged $118,368 7,200,000 16 McGraw-Hill MHP
2.09% New $112,620 2,060,000
17 Charter Communications CHTR
1.84% Added 10% $99,112 1,300,000 18 TAL Education Group XRS
1.81% Cut -12% $97,584 10,165,000
19 MakeMyTrip Limited MMYT
1.66% Unchanged $89,380 7,184,866 20 Motorola Solutions MSI
1.55% New $83,520 1,500,000
21 Moody's Corp. MCO
1.53% Cut -27% $82,525 1,640,000 22 PANDORA MEDIA P
1.44% New $77,571 8,450,000
23 Deckers Outdoor Corp. DECK CALL 1.12% Added 50% $60,405 1,500,000 24 VeriSign Inc. VRSN
1.12% New $60,171 1,550,000
25 3D Systems Corporation DDD
1.03% Added 16% $55,484 1,040,000 26 YY INC YY
1.02% New $54,695 3,835,532
27 Live Nation LYV
0.93% Added 4% $50,274 5,400,000 28 Frontier Comm FTR
0.86% Cut -48% $46,157 10,784,293
29 Mellanox Tech MLNX
0.77% Unchanged $41,566 700,000 30 Fidelity National Info FIS
0.76% New $40,902 1,175,000
31 Sturm, Ruger & Co. Inc. RGR
0.67% Unchanged $36,320 800,000 32 R.R. Donnelley & Sons RRD
0.58% Unchanged $31,451 3,498,394
33 First Solar, Inc. FSLR
0.57% New $30,856 1,000,000 34 News Corp. NWSA
0.54% New $29,337 1,150,000
35 WORKDAY, INC. WDAY
0.53% New $28,613 525,000 36 Pitney Bowes Inc. PBI
0.36% Added 1127% $19,578 1,840,000
37 ARCOS DORADOS ARCO
0.28% Cut -66% $15,070 1,260,000 38 ZILLOW INC Z
0.26% New $14,153 510,000
39 FRANCESCA'S FRAN
0.24% New $12,965 500,000 40 VERA BRADLEY, INC. VRA
0.13% Unchanged $6,903 275,000
41 CompaniaCerveceriasUnidas CU
0.11% Cut -42% $6,010 190,000 42 ROUNDY'S, INC. RNDY
0.05% Cut -27% $2,832 636,314
43 STRATASYS, INC. SSYS
Sold 44 KIT digital, Inc. KITD
Sold
45 LINKEDIN CORP LNKD
Sold
49
Tiger Global Fourth Quarter 2012 Portfolio: … Continued
Q4 2012 www.hedgefundwisdom.com
Next Page: Passport Capital
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
46 US Natural Gas Fund LP UNG CALL
Sold 47 Heckmann Corporation HEK
Sold
48 Apple Inc. AAPL CALL
Sold 49 QUESTCOR PHARMA QCOR
Sold
50 Genpact Ltd. G
Sold 51 Google Inc. GOOG
Sold
52 ANCESTRY COM ACOM
Sold 53 Facebook, Inc. FB
Sold
54 Deckers Outdoor Corp. DECK
Sold 55 BITAUTO HOLDINGS BITA
Sold
56 RenaissanceRe RNR
Sold
50
In a recent interview, John Burbank said that this is a great time for long/short investing, as some companies will keep growing, while a lot of others will not, so you can take advantage of the dichotomy. As to where he’s allocating capital in 2013, he’s overweight mining and basic materials due to inefficiencies. Geographically, he says he has the biggest weighting in Saudi Arabia, as it’s his favorite emerging market (he has 16-17% of his capital invested there). In particular, he’s interested in the domestic economy as it grew 6% last year. The Middle East is a very underbuilt region and he thinks it’s being built up at the fastest rate in the world. He feels $25-30 billion dollars will flow into their market once it really opens up to outsiders, because right now there are only very limited ways to invest there. He likens the opportunity in Saudi Arabia to that of India ten years ago. Keep in mind when viewing the next page, that Burbank’s international positions won’t be reflected. The
Key Takeaways
New Posit ions: Schlumberger (SLB) Calls Williams Companies (WMB) Utilities Select Sector (XLU) Calls Unitedhealth (UNH) AngloGold Ashanti (AU) Gold Fields (GFI) PennyMac Mortgage Trust (PMT) ADT (ADT) Sold Out: Apple (AAPL) Wynn Resorts (WYNN) Oil Services (OIH) Calls CF Industries (CF) Aetna (AET) Ecolab (ECL)
John Burbank
View Passport Capital’s Updated Portfolio on the Next Page
Has returned 22% annualized
Makes plays based on macro themes; has thought markets to be overvalued
for many years now
Passport Capital manager also said that he’s seeing a lot of institutional demand for equities now, as those investors feel that risks in credit have increased. While he says that doesn’t necessarily mean that equities will rise, it’s important to know how big money managers are thinking with regard to risk in various asset classes.
Turning to Burbank’s latest portfolio activity, it’s clear that he’s bullish on mining as Kinross Gold (KGC) is now his third largest US position after increasing his stake by 51% during the fourth quarter. Passport also started new positions in AngloGold Ashanti (AU) and Gold Fields (GFI). AU has been one of John Paulson’s favorite gold mining plays as well. Energy and energy services are also a big theme for Passport as a new position in Schlumberger (SLB) call options is quite large if you consider the notional value of the options ($107 million). Burbank also initiated a new position in Williams Companies (WMB). On the selling side of the equation, Passport reduced exposure to casinos/gaming as they completely exited their stake in Wynn Resorts (WYNN) and sold half of their position in Las Vegas Sands (LVS).
In activity since quarter close, Passport recently filed a 13G with the SEC revealing a brand new position in Yelp (YELP). They own 6.3% of the company with 1,065,261 shares. Robert Karr’s Joho Capital also has been adding to its position in YELP recently as well.
Q4 2012 www.hedgefundwisdom.com
Passport Capital
51
Passport Capital Fourth Quarter 2012 Portfolio:
Continued on next page…
Q4 2012 www.hedgefundwisdom.com
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 Cytec Industries Inc. CYT
8.99% Added 4% $232,968 3,384,680 2 Huntsman Corporation HUN
7.38% Added 13% $191,298 12,031,352
3 Kinross Gold Corporation KGC
5.30% Added 51% $137,257 14,121,122 4 VIVUS Inc. VVUS
4.63% Added 21% $119,952 8,938,268
5 Schlumberger Limited SLB CALL 4.13% New $107,069 1,545,000 6 KINDER MORGAN KMI
3.87% Added 29% $100,373 2,841,000
7 MARATHON PETROLEUM MPC
3.19% Cut -1% $82,719 1,313,000 8 PRETIUM RES INCCOM PVG
2.74% Added 36% $71,015 5,385,897
9 Williams Companies, Inc. WMB
2.36% New $61,050 1,864,700 10 Methanex Corp. MEOH
2.16% Added 97% $55,886 1,756,200
11 HOLLYFRONTIER CORP HFC
2.12% Cut -17% $54,976 1,181,000 12 Domtar Corporation UFS
1.88% Added 64% $48,609 582,000
13 CONSOL Energy Inc. CNX
1.84% Added 57% $47,662 1,484,800 14 International Paper Co. IP
1.81% Added 204% $47,023 1,180,300
15 Utilities Select Sector SPDR XLU CALL 1.75% New $45,396 1,300,000 16 Unitedhealth Group, Inc. UNH
1.73% New $44,916 828,100
17 AngloGold Ashanti Ltd. AU
1.70% New $44,048 1,404,156 18 Gold Fields Ltd. GFI
1.64% New $42,395 3,394,316
19 eBay Inc. EBAY
1.60% Cut -41% $41,589 815,500 20 PennyMac Mortgage PMT
1.50% New $38,986 1,541,568
21 Southern Copper Corp. SCCO
1.43% Added 27% $37,076 979,300 22 Eastman Chemical Co. EMN
1.35% Added 198% $34,985 514,100
23 ADT CORP ADT
1.33% New $34,356 739,000 24 Rock-Tenn Co. RKT
1.32% Added 21% $34,102 487,800
25 Westlake Chemical Corp. WLK
1.19% New $30,794 388,322 26 MONSTER BEVERAGE MNST
1.16% Added 2375% $30,078 569,225
27 Las Vegas Sands Corp LVS
1.06% Cut -49% $27,459 594,861 28 Accuray Incorporated ARAY
0.99% Cut -11% $25,720 4,000,000
29 Cliffs Natural Resources CLF
0.91% Added 448% $23,663 613,500 30 Monsanto Co. MON
0.91% Added 20% $23,596 249,300
31 Arcelor Mittal MT
0.89% New $23,130 1,324,000 32 BHP Billiton Ltd. BHP
0.87% Cut -6% $22,663 289,000
33 Yamana Gold, Inc. AUY
0.86% Added 19% $22,361 1,299,300 34 Boise Inc. BZ
0.82% Added 24% $21,327 2,682,648
35 AK Steel Holding Corp AKS
0.81% New $21,091 4,585,024 36 Steel Dynamics Inc. STLD
0.78% Added 272% $20,310 1,479,275
37 ConocoPhillips COP PUT 0.72% New $18,557 320,000 38 Vale S.A. VALE
0.71% Added 17% $18,457 880,600
39 Walter Energy, Inc. WLT
0.68% Added 6558% $17,556 489,300 40 Google Inc. GOOG
0.66% Cut -59% $17,189 24,300
41 Allegheny Technologies ATI
0.63% Added 33% $16,206 533,800 42 CARPENTER TECH CRS
0.59% Added 19% $15,246 295,300
43 Thoratec Corp. THOR
0.58% Cut 0% $15,008 400,000 44 QUALCOMM Inc QCOM
0.58% Added 12% $15,088 243,900
45 ITC Holdings Corp. ITC
0.58% Added 840% $14,956 194,456
52
Fourth Quarter 2012 Portfolio: …Continued
Passport Capital
Q4 2012 www.hedgefundwisdom.com
Continued on next page…
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
46 Lockheed Martin LMT
0.57% Cut -72% $14,803 160,400 47 Owens-Illinois, Inc. OI
0.54% Unchanged $13,904 653,700
48 Cloud Peak Energy Inc. CLD
0.54% Added 7% $14,101 729,500 49 Kaiser Aluminum KALU
0.53% Added 15% $13,819 224,000
50 NextEra Energy, Inc. NEE
0.53% Cut -12% $13,624 196,900 51 SPDR Gold Shares GLD
0.53% Cut -28% $13,837 85,400
52 VIVUS Inc. VVUS CALL 0.52% Added 33% $13,420 1,000,000 53 SEADRILL PARTNERS SDLP
0.52% New $13,595 530,000
54 LINNCO LLC LNCO
0.50% New $12,848 355,500 55 Peabody Energy Corp. BTU
0.50% Added 19% $12,855 483,100
56 Nucor Corporation NUE
0.45% Cut -50% $11,571 268,100 57 SPDR S&P 500 SPY CALL 0.44% New $11,393 80,000 58 Helmerich & Payne Inc. HP
0.43% Cut -28% $11,068 197,600
59 Rowan Companies Inc. RDC
0.40% Added 98% $10,366 331,500 60 Oil States Intl OIS
0.36% New $9,273 129,620
61 Reliance Steel RS
0.36% Cut -50% $9,361 150,735 62 Anadarko Petroleum APC
0.34% Added 160% $8,873 119,400
63 EDGEN GROUP INC EDG
0.32% Cut -35% $8,243 1,167,591 64 Liberty Global Inc. LBTYK
0.31% New $7,931 135,000
65 OpenTable, Inc. OPEN
0.30% Added 12% $7,779 159,400 66 Gilead Sciences Inc. GILD
0.30% New $7,705 104,900
67 Schlumberger Limited SLB
0.30% Added 35% $7,810 112,700 68 US Natural Gas Fund LP UNG PUT 0.25% Cut -62% $6,426 340,000 69 Priceline.com Inc PCLN
0.22% Added 17% $5,624 9,066
70 Alpha Natural Resources ANR
0.21% New $5,433 557,800 71 AutoZone Inc. AZO
0.21% Cut -66% $5,316 15,000
72 Illumina Inc. ILMN
0.21% New $5,559 100,000 73 United States Steel NOTE X
0.21% Unchanged $5,388 5,000,000
74 ROCKWELL COLLINS COL
0.20% New $5,288 90,900 75 Take-Two Interactive TTWO
0.20% Added 35% $5,130 465,900
76 Kraft Foods Group, Inc. KRFT
0.20% New $5,229 115,000 77 Riverbed Technology RVBD
0.19% Cut -13% $4,975 252,300
78 Idenix Pharmaceuticals IDIX
0.19% Unchanged $5,006 1,032,192 79 SeaDrill Limited SDRL
0.17% New $4,394 119,400
80 PBF ENERGY INC PBF
0.17% New $4,366 150,300 81 Qlik Technologies, Inc. QLIK
0.17% Added 48% $4,450 204,900
82 zipRealty Inc. ZIPR
0.16% Unchanged $4,253 1,519,058 83 Orexigen Therapeutics OREX
0.15% Unchanged $3,938 750,000
84 CBS CORP CL B CBS
0.14% New $3,729 98,000 85 Mercadolibre, Inc. MELI
0.14% Unchanged $3,511 44,700
86 Liberty Media Interactive LINTA
0.14% Cut -11% $3,503 178,000 87 HCA HLDGS INC COM HCA
0.12% New $3,017 100,000
88 NEXTERA ENERGY INC NEE/PO
0.12% Added 50% $3,004 60,000 89 Teva Pharmaceutical TEVA
0.11% New $2,801 75,000
90 Accretive Health, Inc. AH
0.11% Unchanged $2,895 250,000
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Fourth Quarter 2012 Portfolio: …Continued
Passport Capital
Q4 2012 www.hedgefundwisdom.com
Continued on next page…
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
91 Dollar General Corporation DG
0.10% Cut -17% $2,601 59,000 92 Liberty Media LMCA
0.10% New $2,552 22,000
93 Dendreon Corp. NOTE DNDN
0.09% Cut -40% $2,285 3,007,000 94 Medicines Co. MDCO
0.09% New $2,397 100,000
95 Nuance Comm NOTE NUAN
0.08% New $2,066 1,588,000 96 Amarin Corporation plc AMRN
0.08% New $2,023 250,000
97 TARGA RESOURCES TRGP
0.08% New $2,166 41,000 98 Crosstex Energy Inc. XTXI
0.06% New $1,521 106,100
99 Duke Energy Corporation DUK
0.06% New $1,474 23,100 100 Sempra Energy SRE
0.06% New $1,525 21,500
101 Superior Energy Services SPN
0.06% Unchanged $1,647 79,500 102 Dominion Resources D
0.06% New $1,487 28,700
103 Timken Co. TKR
0.05% Cut -90% $1,222 25,551 104 Tyco International Ltd. TYC
0.05% New $1,316 45,000
105 Manitowoc Co. Inc. MTW
0.05% New $1,254 80,000 106 SOLAZYME INC SZYM
0.05% New $1,379 175,500
107 ITT Corporation ITT
0.05% New $1,173 50,000 108 EnerSys NOTE ENS
0.05% New $1,173 1,000,000
109 General Electric Co. GE
0.04% New $1,050 50,000 110 AK Steel Holding NOTE AKS
0.04% New $1,127 1,000,000
111 IGNITE RESTAURANT IRG
0.03% Cut -27% $671 51,600 112 Talisman Energy Inc. TLM
0.03% New $850 75,000
113 iSharesEmergingMarkets EEM
0.02% New $515 11,617 114 Universal Display Corp. PANL
0.02% Cut -42% $589 23,000
115 WORKDAY, INC. WDAY
0.02% New $545 10,000 116 Tesla Motors, Inc. TSLA
0.02% New $589 17,400
117 SHUTTERSTOCK SSTK
0.02% New $390 15,000 118 Utilities Select Sector XLU
0.02% Cut -95% $504 14,444
119 AO Smith Corp. AOS
0.01% Unchanged $334 5,300 120 Rydex S&P Equal Weight RSP
0.01% New $304 5,695
121 The Andersons, Inc. ANDE
0.01% New $292 6,800 122 Esterline Tech ESL
0.01% New $204 3,211
123 Advanced Energy AEIS
0.01% Unchanged $334 24,200 124 Badger Meter Inc. BMI
0.01% New $313 6,600
125 iShares Russell 1000 Value IWD
0.01% New $302 4,153 126 Applied Materials Inc. AMAT
0.01% New $225 19,627
127 Cosan Ltd. CZZ
0.01% Unchanged $331 19,100 128 Photronics Inc. PLAB
0.01% New $235 39,487
129 TRIANGLE PETROLEUM TPLM
0.01% New $182 30,349 130 Oshkosh Corporation OSK
0.01% New $256 8,622
131 Quanta Services, Inc. PWR
0.01% Cut -83% $330 12,100 132 Tetra Tech Inc. TTEK
0.01% Unchanged $304 11,500
133 Hexcel Corp. HXL
0.01% New $318 11,800 134 Industrial Select Sector XLI
0.01% New $379 10,000
135 SPLUNK INC SPLK
0.01% Unchanged $319 11,000
54
Fourth Quarter 2012 Portfolio: …Continued
Passport Capital
Q4 2012 www.hedgefundwisdom.com
Continued on next page…
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
136 Watts Water Tech WTS
0.01% New $305 7,100 137 EMCOR Group Inc. EME
0.01% Unchanged $360 10,400
138 Exelixis, Inc. EXEL
0.00% New $49 10,753 139 Riverview Bancorp RVSB
0.00% New $48 28,409
140 Wendy's/Arby's WEN
0.00% New $47 10,001 141 Cytori Therapeutics CYTX
0.00% New $52 18,450
142 SUPERVALU Inc. SVU
0.00% New $124 50,000 143 Wynn Resorts Ltd. WYNN
Sold
144 United States Oil USO PUT
Sold 145 Express-1 Expedited XPO
Sold
146 Silicon Graphics SGI
Sold 147 V.F. Corporation VFC
Sold
148 National Oilwell Varco NOV
Sold 149 Molycorp, Inc. MCP
Sold
150 AMC NETWORKS AMCX
Sold 151 GROUPON INC GRPN
Sold
152 Achillion Pharma ACHN
Sold 153 Limited Brands, Inc. LTD
Sold
154 Darling International DAR
Sold 155 SPDR S&P Oil & Gas XOP PUT
Sold
156 Sally Beauty Holdings SBH
Sold 157 MAKO Surgical Corp. MAKO
Sold
158 Vertex Pharmaceuticals VRTX
Sold 159 CF Industries Holdings CF
Sold
160 FMC Technologies FTI
Sold 161 Transocean Ltd. RIG
Sold
162 Alcoa, Inc. AA
Sold 163 Yum! Brands, Inc. YUM
Sold
164 Alexander & Baldwin ALEX
Sold 165 Emulex Corp. ELX
Sold
166 Patterson-UTI Energy PTEN
Sold 167 SYMMETRICOM, INC. SYMM
Sold
168 Advanced Micro Devices AMD
Sold 169 Merge Healthcare MRGE
Sold
170 Barrick Gold ABX
Sold 171 Amazon.com Inc. AMZN
Sold
172 Charles Schwab Corp. SCHW
Sold 173 Douglas Dynamics PLOW
Sold
174 EnerSys ENS
Sold 175 THE FRESH MARKET TFM
Sold
176 SPDR S&P 500 SPY
Sold 177 HOMEAWAY INC AWAY
Sold
178 Douglas Emmett Inc DEI
Sold 179 ZYNGA INC ZNGA
Sold
180 Harsco Corporation HSC
Sold
55
Fourth Quarter 2012 Portfolio: …Continued
Passport Capital
Q4 2012 www.hedgefundwisdom.com
Continued on next page…
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
181 SandRidge Energy SD
Sold 182 Seacor Holdings Inc. CKH
Sold
183 Spectrum Pharma SPPI
Sold 184 Ingersoll-Rand Plc IR
Sold
185 Keryx Biopharma KERX
Sold 186 News Corp. NWSA
Sold
187 OCEAN RIG UDW ORIG
Sold 188 The Coca-Cola Co KO
Sold
189 Kemper Corp KMPR
Sold 190 Kelly Services, Inc. KELYA
Sold
191 Western Refining Inc. WNR
Sold 192 Halozyme Therapeutics HALO
Sold
193 Tidewater Inc. TDW
Sold 194 Ecolab Inc. ECL
Sold
195 Select Medical SEM
Sold 196 US Steel Corp. X
Sold
197 Alpha&Omega Semi AOSL
Sold 198 Qihoo 360 Technology QIHU
Sold
199 Fairchild Semiconductor FCS
Sold 200 Freescale Semiconductor FSL
Sold
201 GrafTech International Ltd. GTI
Sold 202 Oil Services ETF OIH CALL
Sold
203 Flagstone Reinsurance FSR
Sold 204 Airgas Inc. ARG
Sold
205 1-800-Flowers.com Inc. FLWS
Sold 206 Quiksilver Inc. ZQK
Sold
207 Vical Inc. VICL
Sold 208 Agrium Inc. AGU
Sold
209 PhotoMedex, Inc. PHMD
Sold 210 Apple Inc. AAPL
Sold
211 VANGUARD HEALTH VHS
Sold 212 Diageo plc DEO
Sold
213 CLOVIS ONCOLOGY, INC. CLVS
Sold 214 Lamar Advertising Co. LAMR
Sold
215 ShoreTel, Inc. SHOR
Sold 216 Golar LNG Ltd. GLNG
Sold
217 Nxstage Medical, Inc. NXTM
Sold 218 SIGMA-ALDRICH CORP SIAL
Sold
219 American Capital Agency AGNC
Sold 220 JDS Uniphase Corporation JDSU
Sold
221 MGM Resorts International MGM
Sold 222 TEAVANA HOLDINGS TEA
Sold
223 SPX Corporation SPW
Sold 224 PlainsExploration&Production PXP
Sold
225 Freeport-McMoRan FCX
Sold
56
Fourth Quarter 2012 Portfolio: …Continued
Passport Capital
Q4 2012 www.hedgefundwisdom.com
Next Page: Perry Capital
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
226 TFS FINANCIAL TFSL
Sold 227 Prestige Brands Holdings PBH
Sold
228 Aetna Inc. AET
Sold 229 Crimson Exploration Inc. CXPO
Sold
230 Discovery Comm DISCA PUT
Sold 231 Mondelez International MDLZ
Sold
232 ON Semiconductor Corp. ONNN
Sold 233 iShares Russell 2000 Index IWM
Sold
234 Con-way Inc. CNW
Sold 235 MATADOR RESOURCES MTDR
Sold
236 Raytheon Co. RTN
Sold
57
Perry Capital was out adding to a bevy of pre-existing positions in the fourth quarter. American International Group (AIG) continues to be their top position. However, it’s now a more concentrated stake as they increased the number of shares they own by 42% during the quarter and it’s now 19.38% of their reported US holdings (over a $524 million stake). Lamar Advertising (LAMR) is another position they were buying shares of in Q4 (an increase of 60%). The company announced that it was considering conversion into a real estate investment trust (REIT), which spurred shares higher. Deutsche Bank thinks this conversion could be likely in 2014 and recommended LAMR shares to clients in Q4, noting that they thought valuation at the time did not reflect the full potential upside from REIT conversion. Perry owns 7.4% of the company
Key Takeaways
New Posit ions: Advance Auto Parts (AAP) MGM Resorts (MGM) Metlife (MET) Calls NRG Energy (NRG) Calls Lorillard (LO) Sold Out: SPDR S&P 500 (SPY) SPDR S&P 500 (SPY) Puts Bank of America (BAC) RBS Preferred (RBS-PS) RBS Preferred (RBS-PQ) Yahoo! (YHOO) Calls AMC Networks (AMCX) MBIA (MBI) Morgan Stanley (MS) United Community Banks (UCBI) Weatherford (WFT)
and this marks the third consecutive quarter that they were out buying shares.
One adjustment Perry made in the quarter involved their stake in BP (BP). They sold 36% of their equity stake and then added to their call options position by 34%. They’ve bet on the company’s turnaround as the uncertainty surrounding the oil spill liability has lifted. Another trade Perry made is actually worth ignoring (yes, you read that right). They almost doubled their exposure to Nexen (NXY) and this was a risk arbitrage play as the company saw a proposed takeover by CNOOC. This trade is worth ignoring, mainly because the merger-arb spread is tiny now that the deal has been granted approval by both the Canadian and US regulatory bodies. NXY will join CNOOC soon and this position will vanish from Perry’s portfolio.
Express Scripts (ESRX) was one of the consensus buys listed at the beginning of this issue and Perry likes the fact that it’s now the biggest pharmacy benefits manager in the country (after the merger with Medco Health). Over time, they see the company realizing almost $1.4 billion in cost synergies and think that the company can eventually begin share repurchases once they pay down the debt raised to finance the merger.
Last, it’s worth highlighting Perry’s purchase of more put options on the iShares Russell 2000 Index (IWM). This is obviously for hedging purposes and they often hold index puts. They closed out their S&P 500 index put position in the quarter and instead added to their Russell hedge.
View Perry Capital’s Updated Portfolio on the Next Page
Q4 2012 www.hedgefundwisdom.com
Perry Capital Richard Perry
Average return of over 15% since inception; only 1 losing year in 22
years (2008)
Seeks to deliver strong returns with low correlations to equity markets
58
Perry Capital Fourth Quarter 2012 Portfolio:
Q4 2012 www.hedgefundwisdom.com
Next Page: Glenview Capital
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 AmericanInternationalGroup AIG
19.38% Added 42% $524,766 14,865,903 2 BP plc BP CALL 10.30% Added 34% $278,988 6,700,000 3 Lamar Advertising Co. LAMR
8.34% Added 60% $225,913 5,830,000
4 Nexen Inc. NXY
7.61% Added 96% $205,956 7,645,000 5 iShares Russell 2000 Index IWM PUT 7.47% Added 84% $202,363 2,400,000 6 NRG Energy, Inc. NRG
6.57% Added 20% $177,924 7,739,203
7 Express Scripts Inc. ESRX
5.27% Added 35% $142,776 2,644,000 8 Hess Corporation HES
4.21% Added 16% $113,864 2,150,000
9 HILLSHIRE BRANDS HSH
4.16% Unchanged $112,560 4,000,000 10 BP plc BP
3.51% Cut -36% $95,060 2,282,900
11 Teva Pharmaceutical TEVA CALL 3.23% Unchanged $87,473 2,342,600 12 Anadarko Petroleum APC CALL 2.85% Unchanged $77,059 1,037,000 13 Calpine Corp. CPN
2.75% Added 0% $74,555 4,112,223
14 Advance Auto Parts Inc. AAP
2.67% New $72,350 1,000,000 15 Universal American Corp UAM
2.44% Unchanged $66,130 7,698,432
16 Allied Nevada Gold Corp. ANV
2.38% Added 14% $64,546 2,142,250 17 MGM Resorts International MGM
1.90% New $51,535 4,427,377
18 MetLife, Inc. MET CALL 1.82% New $49,410 1,500,000 19 Johnson & Johnson JNJ
1.01% Cut -17% $27,262 388,897
20 NRG Energy, Inc. NRG CALL 0.65% New $17,705 770,100 21 North American Energy NOA
0.58% Unchanged $15,635 4,598,466
22 Lorillard, Inc. LO
0.46% New $12,467 106,855 23 SanofiContingentValueRight GCVRZ
0.27% Cut -25% $7,204 4,237,929
24 Caesars Entertainment CZR
0.10% Unchanged $2,788 402,839 25 General Motors Warrants GM/WS/A
0.03% Unchanged $836 42,735
26 General Motors Warrants GM/WS/B
0.02% Unchanged $535 42,735 27 Bank of America Corp BAC
Sold
28 SPDR S&P 500 SPY
Sold 29 RBS Preferred S RBS-PS
Sold
30 AMC NETWORKS AMCX
Sold 31 Yahoo! Inc. YHOO CALL
Sold
32 SPDR S&P 500 SPY PUT
Sold 33 MBIA Inc. MBI
Sold
34 Morgan Stanley MS
Sold 35 RBS Preferred Q RBS-PQ
Sold
36 United Community Banks UCBI
Sold 37 Weatherford International WFT
Sold
59
Larry Robbins’ Glenview Capital had an excellent 2012 as his main fund gained over 29% before fees and his smaller ‘opportunities’ fund gained around 60% before fees. His large bet on for-profit hospitals has been a big contributor to his gains. In the fourth quarter, he was out buying even more shares of these companies. He boosted his holdings in Community Health Systems (CYH) by a whopping 424% in Q4 and it’s now his seventh largest US long position. He also added to his Health Management Associates (HMA) stake by 37%. In December, HMA was profiled on an episode of CBS’s show ’60 Minutes’ that called into question the company’s admission policies. HMA defended itself ahead of the investigative journalism piece that aired. While shares dropped slightly at the time, they have raced higher in the ensuing months, climbing from $7.25 up to $10.75 as Robbins wins yet again.
Life Technologies (LIFE) continues to be Glenview’s largest holding with a $548 million stake. Last month, shares spiked higher when the company said it was exploring a possible sale of itself and retained banks to assist in the process.
Key Takeaways
New Posit ions: Humana (HUM) Charter Communications (CHTR) Apple (AAPL) Canadian Pacific (CP) Hewlett Packard (HPQ) Ctrip (CTRP) Life Technologies (LIFE) Calls Sold Out: Tyco (TYC) Sprint Nextel (S)
Earlier this month, the company reiterated that the strategic review by the board was still ongoing and that they haven’t decided on any specific course of action. CEO Greg Lucier said on the company’s recent Q4 earnings call that the company actually began its strategic review in the summer of 2012 and that “all ideas are on the table.” One Jefferies & Co analyst speculated that a deal could fetch $50 to $60 per share in a leveraged buyout (LBO), while a JPMorgan analyst argued higher prices were possible at $65 to $75. LIFE currently trades around $63 after the current spike.
While the majority of hedge funds that owned Apple in this issue were selling shares in the fourth quarter, Larry Robbins’ firm was one of the few that stepped in to buy. They took advantage of the decline to initiate a new position in the technology giant. Another stock Glenview was out buying was J.C. Penney (JCP). The hedge fund boosted their holdings by 64% during Q4 after originally starting their position in Q3. Last, Glenview also bought more General Motors (GM) stock, as it’s now a top-15 US holding for them. GM is actually one of the most commonly held stocks among all hedge funds.
Shifting to their selling activity, Robbins cut a third of his McKesson (MCK) stake and this is noteworthy because this has been a longstanding position for his firm as it looks like they’ve finally locked in some profits.
View Glenview Capital’s Updated Portfolio on the Next Page
Q4 2012 www.hedgefundwisdom.com
Glenview Capital Larry Robbins
Known for taking concentrated positions in large caps
Previously a trader at Leon
Cooperman’s Omega Advisors
60
Continued on Next Page…
Glenview Capital Fourth Quarter 2012 Portfolio:
Q4 2012 www.hedgefundwisdom.com
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 Life Technologies LIFE
7.75% Cut -2% $548,923 11,195,648 2 Tenet Healthcare Corp. THC
6.34% Added 5% $449,363 13,839,339
3 AmericanInternationalGroup AIG
4.65% Cut -3% $329,621 9,337,698 4 Health Management HMA
4.61% Added 37% $326,755 35,059,503
5 Flextronics International FLEX
4.32% Added 9% $305,977 49,271,638 6 HCA HLDGS INC COM HCA
3.79% Added 6% $268,551 8,901,256
7 Community Health Systems CYH
3.71% Added 424% $262,864 8,551,195 8 Xerox Corp. XRX
3.28% Cut -3% $232,248 34,053,968
9 McKesson Corporation MCK
3.22% Cut -33% $228,250 2,354,059 10 CIGNA Corporation CI
3.15% Cut -28% $222,985 4,171,059
11 BMC Software Inc. BMC
2.91% Cut -2% $206,443 5,210,579 12 Thermo Fisher Scientific TMO
2.88% Cut -20% $204,188 3,201,443
13 Fidelity National Info FIS
2.73% Cut -19% $193,541 5,559,919 14 Pentair, Inc. PNR
2.43% Added 31% $172,384 3,507,294
15 General Motors GM
2.42% Added 41% $171,652 5,953,947 16 Computer Sciences Corp CSC
2.39% Cut -5% $169,571 4,233,990
17 Citigroup, Inc. C
2.26% Cut -13% $160,311 4,052,345 18 Aon Corporation AON
2.22% Cut 0% $157,267 2,828,041
19 URS Corporation URS
2.07% Unchanged $146,441 3,730,040 20 Babcock & Wilcox BWC
2.04% Added 0% $144,826 5,527,708
21 Cardinal Health, Inc. CAH
2.03% Cut -22% $143,676 3,488,981 22 J. C. Penney Company JCP
2.03% Added 64% $143,865 7,299,112
23 Rovi Corporation ROVI
1.96% Added 12% $138,561 8,979,966 24 Humana Inc. HUM
1.92% New $135,973 1,981,241
25 Time Warner Cable TWC
1.80% Added 59% $127,491 1,311,774 26 Electronic Arts Inc. EA
1.66% Cut -11% $117,712 8,106,855
27 ETRADE Financial ETFC
1.45% Unchanged $102,829 11,489,265 28 Hospira Inc. HSP
1.40% Added 99% $99,509 3,185,323
29 Charter Communications CHTR
1.29% New $91,501 1,200,173 30 Lifepoint Hospitals Inc. LPNT
1.28% Unchanged $90,686 2,402,277
31 Clearwire Corporation CLWR
1.23% Added 7% $86,851 30,052,249 32 Lamar Advertising Co. LAMR
1.16% Added 37% $82,236 2,122,212
33 Apple Inc. AAPL
1.05% New $74,504 140,000 34 Canadian Pacific Railway CP
1.01% New $71,876 707,248
35 Take-Two Interactive TTWO
1.00% Cut -10% $70,503 6,403,564 36 Constellation Brands Inc. STZ
0.92% Added 493% $65,263 1,844,095
37 B/E AEROSPACE BEAV
0.84% Added 37% $59,421 1,202,858 38 Lowe's Companies Inc. LOW
0.83% Cut -57% $59,028 1,661,834
39 Mueller Water Products MWA
0.79% Cut -18% $55,893 9,963,107 40 Liberty Global Inc. LBTYA
0.77% Unchanged $54,405 864,114
41 CIT Group, Inc. CIT
0.73% Added 162% $51,396 1,330,114 42 Meritor, Inc. MTOR
0.64% Added 30% $45,441 9,606,963
43 Hewlett-Packard Company HPQ
0.58% New $41,325 2,900,000 44 Ctrip.com International CTRP
0.48% New $33,808 1,491,948
45 SIRIUS XM Radio Inc. SIRI
0.41% Cut -75% $28,900 10,000,000
61
Fourth Quarter 2012 Portfolio: …Continued
Glenview Capital
Q4 2012 www.hedgefundwisdom.com
Next Page: Viking Global
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
46 Hartford Financial HIG
0.34% New $23,847 1,062,700 47 Chimera Investment CIM
0.31% Added 68% $22,148 8,485,741
48 United Parcel Service UPS
0.26% New $18,433 250,000 49 Life Technologies LIFE CALL 0.24% New $17,161 350,000 50 Capital One Financial COF
0.20% Unchanged $14,005 241,759
51 Sensata Technologies ST
0.11% Unchanged $7,961 245,100 52 Citigroup Warrants C/WS/A
0.05% Unchanged $3,613 8,561,020
53 UNWIRED PLANET UPIP
0.03% Unchanged $1,804 1,503,543 54 Tyco International Ltd. TYC
Sold
55 Sprint Nextel Corp. S
Sold
62
Viking Global’s founder Andreas Halvorsen spoke at the Milken Institute where he said that good management teams are extremely underappreciated in their ability to take market share, even in low growth environments. He equally believes poor management teams are underappreciated in that they can destroy things quicker than you think. He says Viking focuses on finding the winners and losers. On the topic of shorting stocks, Halvorsen noted that it’s a “heartwrenching activity, because you can lose a lot of money doing it.” He takes a defensive approach there, saying that you can’t short a bunch of the underperforming stocks because the risk is too high if you’re wrong. And when you are wrong, “you have to get out very quickly, which means you can’t have very large positions.” The Viking manager says that you have to have patience in any business, and hedge funds are no different. As to how Viking approaches investing, he notes they start by looking
Key Takeaways
New Posit ions: Alexion Pharmaceuticals (ALXN) Las Vegas Sands (LVS) AutoZone (AZO) Comcast (CMCSA) EMC (EMC) Michael Kors (KORS) Virgin Media (VMED) Sold Out: Apple (AAPL) Priceline.com (PCLN) Viacom (VIAB) Eli Lilly (LLY) TripAdvisor (TRIP) Walmart (WMT) Stericycle (SRCL)
at industries/sectors and talking to competitors, suppliers, etc. He talks with management to see how they think about the competitive dynamics of the industry. He likes to bet on a management team that has a view of the underlying dynamics similar to what Viking believes. Halvorsen said he is also fascinated by investors’ focus on fees, arguing that instead they should be focusing on the net return after fees. Lastly, he said there are certain macro backdrop risks that are concerning.
After selling part of their position in Priceline.com (PCLN) in the third quarter, Viking Global liquidated the rest of their stake in the fourth quarter. They also exited their Apple (AAPL) stake, something many other managers did during the same timeframe. Last quarter’s issue of Hedge Fund Wisdom drew attention to the fact that Viking had decided to allocate more capital to its technology, media & telecom team. That decision is expressed mainly via increased positions in media companies. Viking’s top holding is Time Warner (TWX) as they boosted their stake by 45% in Q4. They also added to their position in News Corp (NWSA), their second largest position.
In the financial sector, Capital One Financial (COF) has drawn Viking’s attention, as it’s now their fourth largest position after they bought more shares. COF is featured later in this issue’s equity analysis section. In activity since the end of Q4, Viking has disclosed that they now own 5.3% of Michael Kors (KORS) with over 10.6 million shares as of February 8th (an increase over what they reported on the next page).
Andreas Halvorsen Viking Global
View Viking Global’s Updated Portfolio on the Next Page
Has returned an average of 13% annually over the past decade
Has been directing more capital to Viking’s ‘best ideas’ & is taking a
more concentrated portfolio approach than in the past
Q4 2012 www.hedgefundwisdom.com
63
Fourth Quarter 2012 Portfolio: Viking Global
Q4 2012 www.hedgefundwisdom.com
Continued on Next Page…
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 Time Warner Inc. TWX
6.48% Added 45% $935,770 19,564,518 2 News Corp. NWSA
6.06% Added 12% $874,871 34,295,229
3 Danaher Corp. DHR
5.57% Added 132% $803,913 14,381,274 4 Capital One COF
5.48% Added 36% $791,821 13,668,594
5 QUALCOMM QCOM
4.90% Added 12% $708,263 11,449,533 6 Williams Companies WMB
4.41% Added 26% $636,622 19,444,793
7 Visa, Inc. V
3.64% Cut -35% $525,026 3,463,694 8 Estee Lauder EL
3.34% Added 12% $482,378 8,058,449
9 ACE Limited ACE
3.04% Added 10% $439,126 5,502,835 10 LyondellBasell LYB
2.98% Cut -20% $430,628 7,542,972
11 H&R Block, Inc. HRB
2.96% Cut -3% $426,806 22,983,678 12 Eastman Chemical EMN
2.85% Added 0% $411,776 6,051,085
13 Intuitive Surgical ISRG
2.78% Added 841% $401,415 818,598 14 Biogen Idec Inc. BIIB
2.76% Added 36% $398,998 2,725,961
15 Crown Castle CCI
2.65% Added 31% $382,243 5,297,165 16 Alexion Pharma ALXN
2.61% New $376,295 4,014,242
17 Schlumberger SLB
1.91% Cut -48% $276,180 3,985,860 18 Las Vegas Sands Corp LVS
1.89% New $273,248 5,919,605
19 Mastercard Inc MA
1.88% Cut -33% $271,560 552,762 20 Humana Inc. HUM
1.68% Added 115% $242,320 3,530,829
21 American Tower AMT
1.62% Added 108% $233,844 3,026,330 22 Valeant Pharma VRX
1.61% Cut -27% $231,872 3,879,419
23 AmericanInternationalGroup AIG
1.56% Cut -15% $225,618 6,391,462 24 DaVita, Inc. DVA
1.54% Cut -31% $222,909 2,016,734
25 Citigroup, Inc. C
1.48% Added 170% $213,728 5,402,650 26 Carter's, Inc. CRI
1.44% Added 3% $208,069 3,738,900
27 AutoZone Inc. AZO
1.43% New $206,561 582,800 28 Berkshire Hathaway BRK-B
1.43% Added 147% $206,686 2,304,200
29 SanDisk Corp. SNDK
1.35% Added 377% $194,980 4,482,305 30 Equinix, Inc. EQIX
1.34% Added 85% $193,226 937,081
31 BlackBerry BBRY
1.31% Added 247% $189,703 15,981,784 32 Medivation, Inc. MDVN
1.19% Cut -13% $171,652 3,355,218
33 Comcast Corporation CMCSA
1.09% New $157,222 4,208,300 34 State Street Corp. STT
1.02% Cut -50% $146,704 3,120,700
35 Colfax Corporation CFX
0.92% Cut -12% $132,748 3,289,934 36 Sherwin-Williams Co. SHW
0.86% Cut -48% $123,941 805,757
37 EQT Corporation EQT
0.84% Cut -25% $121,705 2,063,500 38 EMC Corporation EMC
0.81% New $117,045 4,626,300
39 MICHAEL KORS KORS
0.80% New $116,103 2,275,200 40 Southwestern Energy Co. SWN
0.75% Added 194% $108,904 3,259,637
41 Universal Health UHS
0.71% Cut -29% $101,868 2,106,894 42 Cardinal Health, Inc. CAH
0.61% Cut -59% $88,365 2,145,834
43 Cepheid CPHD
0.59% Cut -3% $84,826 2,505,210 44 W.R. Grace & Co. GRA
0.56% Cut -26% $80,574 1,198,494
45 Virgin Media, Inc. VMED
0.51% New $74,021 2,014,200
64
Viking Global
Q4 2012 www.hedgefundwisdom.com
Fourth Quarter 2012 Portfolio: … Continued
Next: Farallon Capital
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
46 Tibco Software, Inc. TIBX
0.40% New $57,185 2,601,700 47 Marsh & McLennan MMC
0.37% Cut -52% $53,916 1,564,159
48 ICICI Bank Ltd. IBN
0.36% Cut -10% $52,201 1,197,000 49 Verisk Analytics VRSK
0.29% New $41,842 820,917
50 Ctrip.com CTRP
0.26% New $37,770 1,666,827 51 CATAMARAN CTRX
0.23% Cut -16% $32,642 693,049
52 Tenet Healthcare THC
0.19% New $27,940 860,500 53 Dollar General DG
0.16% New $22,446 509,100
54 Huntsman Corp HUN
0.15% New $21,546 1,355,100 55 Mosaic Co. MOS
0.11% New $16,142 285,048
56 Prudential Financial PRU
0.08% Cut -73% $12,041 225,800 57 TransDigm Group TDG
0.06% New $9,272 68,000
58 Oncothyreon Inc ONTY
0.04% Added 3% $6,453 3,361,315 59 MEDNAX, Inc. MD
0.03% Cut -90% $4,771 60,000
60 Newell Rubbermaid NWL
0.02% New $3,304 148,400 61 Facebook, Inc. FB
Sold
62 Thermo Fisher TMO
Sold 63 Viacom Inc VIAB
Sold
64 CIGNA Corporation CI
Sold 65 Eli Lilly & Co. LLY
Sold
66 Whole Foods WFM
Sold 67 Cabot Oil & Gas COG
Sold
68 Ariad Pharma ARIA
Sold 69 Apple Inc. AAPL
Sold
70 MetLife, Inc. MET
Sold 71 CIT Group, Inc. CIT
Sold
72 Stericycle, Inc. SRCL
Sold 73 Hartford Financial HIG
Sold
74 Albemarle Corp. ALB
Sold 75 U.S. Bancorp USB
Sold
76 Noble Corp. NE
Sold 77 TripAdvisor Inc TRIP
Sold
78 Wynn Resorts Ltd. WYNN
Sold 79 Priceline.com Inc PCLN
Sold
80 Invesco Ltd. IVZ
Sold 81 Wal-Mart Stores WMT
Sold
82 WellCare Health WCG
Sold
65
Last quarter’s section on Farallon Capital highlighted their merger arbitrage play on Nexen (NXY). During the fourth quarter, the spread widened before regulatory approval was eventually granted by Canadian and US authorities. The deal will close soon and NXY will vanish from Farallon’s portfolio, as they’ll move on to the next risk arbitrage opportunity. One such play in their portfolio from the fourth quarter is McMoRan Exploration (MMR). The company received a somewhat surprising takeover bid from Freeport McMoran (FCX). Prior to the bid, MMR shares were languishing. FCX will acquire MMR for $3.4 billion in cash. Upon closing, MMR shareholders will also receive units in a distribution from a royalty trust which will have a 5% interest on future
Key Takeaways
New Posit ions: Dollar General (DG) EMC (EMC) Walt Disney (DIS) Sally Beauty (SBH) SPDR Gold Trust (GLD) Puts SPDR Gold (GLD) Calls American Express (AXP) National Bank Holdings (NBHC) McMoRan Exploration (MMR) Sold Out: WellPoint (WLP) General Dynamics (GD) Qualcomm (QCOM) Apple (AAPL) CBS (CBS) NetApp (NTAP) Ancestry.com ~ bought out
production from some of MMR’s properties. Brand new positions for Andrew Spokes’
firm (recall Farallon founder Thomas Steyer is stepping down) include Dollar General (DG) and EMC (EMC). Dollar stores as a whole saw buying activity from numerous managers profiled in the newsletter (DG and Dollar Tree (DLTR) were the two most popular). It looks like Farallon took advantage of the big slide in shares and stepped in once they saw that valuation was cheap.
Media was a sector that Farallon was out allocating capital to in the fourth quarter as well. They boosted their existing stake in News Corp (NWSA) and started a brand new position in Walt Disney (DIS). The thesis on DIS is that the company has finally finished a long cycle of capital expenditure on its Parks segment and could see margin expansion soon. Children’s Investment Fund in the UK believes that DIS is entering a “multiyear growth and re-rating phase” and think a long-term transfer of economics is underway from distributors to content providers.
Recent European regulatory rules have forced hedge funds to disclose short positions over a certain size. After searching the databases, it was revealed that Farallon was short -1.18% of Icon in Ireland as of the end of November.
Last year, Farallon was ranked one of the top ten hedge funds by net gains since inception with a $12.2 billion net gain since 1987.
Thomas Steyer Farallon Capital
View Farallon Capital’s Updated Portfolio on the Next Page
Typically focuses on risk arbitrage
strategies
Founded Farallon in 1986 & invests in equities, private investments, debt,
etc.
Q4 2012 www.hedgefundwisdom.com
66
Fourth Quarter 2012 Portfolio: Farallon Capital
Q4 2012 www.hedgefundwisdom.com
Continued on Next Page…
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 Hudson Pacific Properties HPP
5.96% Unchanged $257,645 12,233,861 2 Nexen Inc. NXY
4.89% Cut -10% $211,075 7,835,000
3 News Corp. NWSA
4.46% Added 28% $192,623 7,542,000 4 Dollar General Corporation DG
4.41% New $190,689 4,325,000
5 Google Inc. GOOG
3.61% Added 28% $156,061 220,000 6 Priceline.com Incorporated PCLN
3.11% Cut -14% $134,303 216,200
7 ROCKWELL COLLINS INC COL
3.11% Added 22% $134,349 2,309,600 8 EMC Corporation EMC
3.04% New $131,181 5,185,000
9 State Street Corp. STT
3.00% Cut -5% $129,489 2,754,500 10 Owens-Illinois, Inc. OI
3.00% Cut -6% $129,428 6,085,000
11 Fidelity National Info FIS
2.98% Added 47% $128,553 3,693,000 12 Check Point Software CHKP
2.95% Added 79% $127,294 2,672,000
13 TransDigm Group TDG
2.94% Added 4% $126,973 931,161 14 Visa, Inc. V
2.92% Cut -29% $126,327 833,400
15 Union Pacific Corp UNP
2.72% Cut 0% $117,548 935,000 16 Walt Disney Co. DIS
2.64% New $114,019 2,290,000
17 Equinix, Inc. EQIX
2.60% Added 37% $112,173 544,000 18 Sally Beauty Holdings SBH
2.58% New $111,604 4,735,000
19 American Tower Corp. AMT
2.50% Cut -19% $108,163 1,399,800 20 Express Scripts Inc. ESRX
2.47% Added 67% $106,650 1,975,000
21 KINDER MORGAN KMI
2.45% Cut -4% $105,990 3,000,000 22 SPDR Gold Shares GLD PUT 2.27% New $98,184 606,000 23 Yahoo! Inc. YHOO
2.27% Cut -13% $98,107 4,930,000
24 SPDR Gold Shares GLD CALL 2.27% New $98,184 606,000 25 Mondelez International MDLZ
2.03% New $87,775 3,448,500
26 OAKTREE CAPITAL OAK
1.76% Unchanged $75,944 1,669,460 27 Oracle Corp. ORCL
1.75% Cut -22% $75,703 2,272,000
28 American Express AXP
1.75% New $75,759 1,318,000 29 Shaw Group Inc. SHAW
1.71% Cut -26% $73,877 1,585,000
30 United Technologies UTX
1.66% Added 16% $71,915 876,900 31 Moody's Corp. MCO
1.20% Cut -19% $51,830 1,030,000
32 Town Sports Intl CLUB
1.00% Unchanged $43,240 4,060,082 33 BP plc BP
0.93% Added 15% $40,391 970,000
34 NATIONAL BANK NBHC
0.88% New $37,838 1,992,500 35 FEI Co. FEIC
0.70% Cut -9% $30,327 546,828
36 CHICAGO BRIDGE&IRON CBI
0.65% Added 126% $28,274 610,000 37 VCA Antech Inc. WOOF
0.64% Added 18% $27,786 1,320,000
38 Life Technologies Corp LIFE
0.61% Unchanged $26,521 540,364 39 Illumina Inc. ILMN
0.51% Cut -33% $21,958 395,000
40 McMoRan Exploration Co. MMR
0.48% New $20,945 1,305,000 41 Allscripts Healthcare MDRX
0.41% New $17,757 1,885,000
42 Copa Holdings SA CPA
0.34% New $14,484 145,636 43 Team Health Holdings, Inc. TMH
0.34% New $14,529 505,000
44 Westport Innovations WPRT
0.30% Added 17% $13,064 489,100 45 EnCana Corp. ECA
0.29% Unchanged $12,473 631,236
67
Fourth Quarter 2012 Portfolio: … Continued
Farallon Capital
Q4 2012 www.hedgefundwisdom.com
Next: Icahn Capital
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
46 Knight Capital NOTE KCG
0.28% Unchanged $11,910 12,000,000 47 HALCON RESOURCES HK
0.27% Unchanged $11,832 1,709,816
48 NOVADAQ TECH NVDQ
0.26% Unchanged $11,330 1,278,800 49 Kinder Morgan Warrants KMIIV
0.26% Cut -23% $11,450 3,029,200
50 Freeport-McMoRan FCX
0.25% New $10,773 315,000 51 CVS Caremark CVS
0.25% Unchanged $10,615 219,536
52 Fresh Del Monte Produce FDP
0.25% Added 16% $10,626 403,282 53 ABBVIE INC. ABBV
0.24% New $10,248 300,000
54 eBay Inc. EBAY
0.22% Unchanged $9,482 185,845 55 Pep Boys PBY
0.22% Unchanged $9,602 976,800
56 FLIR Systems, Inc. FLIR
0.20% Added 92% $8,491 380,582 57 Potash Corp POT
0.20% Unchanged $8,584 210,955
58 Ultra Petroleum Corp. UPL
0.18% Unchanged $7,589 418,600 59 7 Days Group Holdings SVN
0.18% New $7,718 640,000
60 Fuel Systems Solutions FSYS
0.17% Unchanged $7,158 486,945 61 MERRIMACK PHARMA MACK
0.15% Unchanged $6,501 1,067,538
62 Chiquita Brands CQB
0.14% Unchanged $6,243 756,727 63 Tata Motors Ltd. TTM
0.13% Unchanged $5,673 197,514
64 Activision Blizzard, Inc. ATVI
0.13% New $5,446 512,830 65 Clearwire Corporation CLWR
0.13% New $5,780 2,000,000
66 HORIZON PHARMA HZNP
0.12% Unchanged $5,180 2,223,071 67 PENDRELL CORP PCO
0.12% Added 12% $5,076 3,996,899
68 WebMD Health Corp. WBMD
0.07% Cut -29% $3,060 213,357 69 Gardner Denver Inc. GDI
0.06% New $2,398 35,000
70 Dynavax Technologies DVAX
0.06% New $2,431 850,000 71 SanofiContigentValueRight GCVRZ
0.06% Cut -37% $2,607 1,533,671
72 Idenix Pharmaceuticals IDIX
0.05% Unchanged $2,061 425,000 73 Sycamore Networks Inc. SCMR
0.05% New $2,224 992,715
74 Cymer Inc. CYMI
0.05% New $2,170 24,000 75 Horsehead Holding Corp. ZINC
0.05% Unchanged $2,176 213,100
76 MIPS TECHNOLOGIES MIPS
0.05% New $1,977 252,862 77 DELPHI AUTOMOTIVE DLPH
0.04% Unchanged $1,812 47,368
78 YM BioSciences Inc. YMI
0.02% New $893 311,028 79 BioMimetic Therapeutics BMTI PUT 0.02% New $724 100,000 80 WellPoint Inc. WLP
Sold
81 General Dynamics Corp. GD
Sold 82 ANCESTRY COM ACOM
Sold
83 Molycorp, Inc. MCP
Sold 84 QUALCOMM Inc QCOM
Sold
85 Myriad Genetics Inc. MYGN
Sold 86 Cooper Industries plc CBE
Sold
87 Collective Brands PSS
Sold 88 Apple Inc. AAPL
Sold
89 NetApp, Inc. NTAP
Sold 90 CBS CORP CL B CBS
Sold
68
Everyone’s favorite corporate activist was active yet again in the fourth quarter. The main takeaways are that he completely exited his prior position in OshKosh (OSK) and started a brand new position in Transocean (RIG). Additionally, he beefed up his stake in Netflix, over tripling his position. And, he’s already made a ton of money on that stake as NFLX shares have skied from around $53 up to current levels of $189. According to Institutional Investor’s Alpha, Icahn Partners returned an estimated 22.4% in 2012. This comes on the heels of a 28% return in 2011, an 11.4% return in 2010, a 24.75% return in 2009, and a (35.6)% return in 2008. Overall, Icahn Partners has seen average annual returns of 12.75%. If you invested $100 with Icahn at the beginning of 2005, you’d now have $223.
In activity since quarter end, Icahn has initiated another new position: Herbalife (HLF). Icahn filed an activist 13D with the SEC due to trading activity on February 4th. However, reading the fine print on the filing details that Icahn was buying over various dates (as early as December 20th and as recent as February 14th). He now owns 12.98% of the company with 14,015,151 shares. This share count includes common stock as well as numerous call option positions. In fact, the vast majority of Icahn’s stake was built via options. In the filing, Icahn notes that, “The Reporting Persons have conducted significant analysis with respect to
Key Takeaways
New Posit ions: Transocean (RIG) Sold Out: Oshkosh (OSK) Commercial Metals Company (CMC)
the Issuer. The Reporting Persons have concluded that the Company has a legitimate business model, with favorable long-term opportunities for growth. The Reporting Persons intend to have discussions with management of the Issuer regarding the business and strategic alternatives to enhance shareholdervalue, such as a recapitalization or a going-private transaction.”
As detailed earlier in this issue, Bill Ackman of Pershing Square Capital laid out a detailed case for shorting the company in December, calling it a pyramid scheme. Dan Loeb of Third Point responded by going long and defending the company in his quarterly letter. Now, Carl Icahn has jumped into the ring. Icahn and Ackman actually had a very public argument on television on CNBC and it’s very apparent that the two don’t get along. Given the timing of Icahn’s purchase (post-television fight), it’s worth wondering whether Icahn is doing this mainly to spite Ackman and to try and squeeze him out of his short position (thus costing him tons of money). Herbalife (HLF) is analyzed in-depth in the equity analysis section later on.
View Icahn Capital’s Updated Portfolio on the Next Page
Q4 2012 www.hedgefundwisdom.com
Icahn Capital Carl Icahn
Known as a ‘rabblerouser’ and a corporate raider
Typically takes controlling stakes &
uses activism
69
Fourth Quarter 2012 Portfolio: Icahn Capital
Q4 2012 www.hedgefundwisdom.com
Next: JANA Partners
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 Icahn Enterprises, L.P. IEP
33.96% Cut -79% $4,370,062 97,764,251 2 CVR Energy, Inc. CVI
27.00% Unchanged $3,473,785 71,198,718
3 Forest Laboratories Inc. FRX
8.42% Unchanged $1,082,982 30,662,005 4 Chesapeake Energy CHK
7.71% Added 19% $992,192 59,698,689
5 Federal-Mogul Corp. FDML
4.78% Unchanged $615,116 76,697,804 6 Netflix, Inc. NFLX
4.00% Add 343% $514,100 5,541,066
7 The Hain Celestial Group HAIN
3.05% Added 2% $392,551 7,239,963 8 AmericanRailcarIndustries ARII
2.93% Unchanged $376,675 11,871,268
9 Mentor Graphics Corp. MENT
2.13% Unchanged $274,367 16,120,289 10 Transocean Ltd. RIG
2.03% New $260,684 5,838,386
11 Navistar International NAV
2.00% Add 16% $257,869 11,845,167 12 Take-Two Interactive TTWO
1.03% Add 47% $132,349 12,020,744
13 WebMD Health Corp. WBMD
0.75% Unchanged $96,085 6,700,525 14 Enzon Pharmaceuticals ENZN
0.20% Unchanged $26,159 5,904,863
15 Motricity, Inc. MOTR
0.02% Unchanged $2,781 6,782,039 16 Oshkosh Corporation OSK
Sold
17 Commercial Metals CMC
Sold
70
JANA Partners did a significant amount of buying in the fourth quarter. They started a sizable stake in Copart (CPRT), over tripled their exposure to QEP Resources (QEP), and over doubled their exposure to Liberty Interactive Ventures (LVNTA). LVNTA is the tracking stock created by John Malone that was spun-off to shareholders of Liberty Interactive (LINTA). LVNTA tracks Liberty’s ownership stakes in various companies such as Expedia, TripAdvisor and more. It seems plausible that JANA would accumulate a stake in these shares due to a potential disparity between LVNTA’s valuation and the collective valuation of all the stakes Liberty holds in other companies. As of the end of the fourth quarter, JANA owned 5.93% of LVNTA shares. JANA also owns a LINTA position, but cut it almost in half during Q4.
JANA’s Barry Rosenstein and Scott Ostfeld recently gave an interview to Columbia Business School’s Graham & Doddsville where they talked about their investment style. Rosenstein says one of the most important lessons he’s learned is to not blink when taking risks and to remain fearless.
JANA Partners
Key Takeaways
New Posit ions: Copart (CPRT) VeriSign (VRSN) ADT (ADT) TripAdvisor (TRIP) Waste Management (WM) Iron Mountain (IRM) Fifth & Pacific (FNP) Sold Out: Apple (AAPL) Priceline.com (PCLN) Motorola Solutions (MSI) Google (GOOG) Michael Kors (KORS)
View JANA Partners’ Updated Portfolio on the Next Page
JANA typically focuses on activist investing and he commented on how this impacts portfolio construction: “Our highest conviction ideas are the ideas where we have the most impact on the outcome. Those are our activist ideas … In our approach, we’re extremely disciplined. I don’t want to be only an activist because when you force things the quality of your ideas is diluted. We came up with this rubric we call V-cubed, which is value, votes, and variety of ways to win. Basically, we have to be comfortable buying in at a valuation that provides us with a margin of safety, irrespective of any activism we will attempt to initiate and that may be unsuccessful. In my experience, if you have all three of those checked off, you’re guaranteed victory. If you’re missing one of them, there’s a good chance you’re going to lose. We’re extremely judicious.”
Highlighting some additional portfolio activity from JANA, the hedge fund launched a position in Fifth and Pacific (FNP) during the fourth quarter. This is the former Liz Claiborne company and houses the popular Kate Spade brand as well as Juicy Couture. There has been speculation that FNP will put the latter brand up for sale or change its management team. Rosenstein’s team also initiated positions in ADT (ADT) and VeriSign (VRSN), two hedge fund favorites as of late.
Barry Rosenstein
Q4 2012 www.hedgefundwisdom.com
Has returned 14.3% annualized since inception in 2001
“Value-oriented fund with an event-
driven strategy which invests in companies considering or
implementing change.”
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Fourth Quarter 2012 Portfolio: JANA Partners
Q4 2012 www.hedgefundwisdom.com
Next: Pennant Capital
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 Agrium Inc. AGU
26.70% Added 28% $943,644 9,448,593 2 QEP Resources, Inc. QEP
7.55% Added 365% $266,881 8,816,692
3 COPART INC (DE) CPRT
5.11% New $180,725 6,126,276 4 Coca-Cola Enterprises Inc. CCE
4.70% Added 10% $166,165 5,236,840
5 Liberty Interactive Ventures LVNTA
3.97% Added 178% $140,428 2,072,435 6 Coventry Health Care Inc. CVH
3.94% Added 14% $139,353 3,108,487
7 Rockwood Holdings Inc. ROC
3.88% Added 59% $137,237 2,774,710 8 AmericanInternationalGroup AIG
3.46% Added 123% $122,431 3,468,292
9 Aetna Inc. AET
3.38% Added 10% $119,556 2,581,649 10 VeriSign Inc. VRSN
3.36% New $118,872 3,062,128
11 ADT CORP ADT
3.34% New $118,201 2,542,498 12 The McGraw-Hill Co MHP
3.34% Cut -17% $118,004 2,158,475
13 Visteon Corp VC
2.88% Cut -3% $101,772 1,890,963 14 Expedia Inc. EXPE
2.86% Added 58% $101,130 1,645,994
15 TripAdvisor Inc TRIP
2.70% New $95,305 2,273,502 16 Netflix, Inc. NFLX
2.62% Added 138% $92,590 1,000,000
17 Liberty Media LMCA
2.59% Cut -50% $91,381 787,701 18 RYMAN HOSPITALITY RHP
2.57% New $90,774 2,360,230
19 SPDR Gold Shares GLD
2.12% Added 58% $74,920 462,412 20 Liberty Media Interactive LINTA
1.43% Cut -42% $50,541 2,568,138
21 Waste Management, Inc. WM
1.23% New $43,627 1,293,026 22 Teekay Corporation TK
1.22% Added 29% $43,153 1,344,337
23 Iron Mountain Inc. IRM
1.22% New $43,117 1,388,643 24 FIFTH AND PACIFIC FNP
1.16% New $41,000 3,293,135
25 SEMGROUP CORP A SEMX
0.60% Cut -28% $21,046 538,546 26 Kinder Morgan Warrants KMIIV
0.37% Added 13% $13,227 3,499,226
27 Spectra Energy Corp. SE
0.35% New $12,321 450,000 28 Convergys Corporation CVG
0.28% Added 4% $9,789 596,517
29 Big Lots Inc. BIG
0.28% New $10,040 352,762 30 Leucadia National Corp. LUK
0.17% New $6,142 258,161
31 Opko Health, Inc. OPK
0.16% Cut -57% $5,626 1,169,630 32 DIAMONDBACK ENERGY FANG
0.15% New $5,382 281,490
33 KAR Auction Services, Inc. KAR
0.14% New $5,060 250,000 34 Symantec Corporation SYMC CALL 0.08% New $2,823 150,000 35 KINDER MORGAN KMI
0.05% Cut -92% $1,896 53,668
36 Apple Inc. AAPL
Sold 37 Blyth, Inc. BTH
Sold
38 Priceline.com Incorporated PCLN
Sold 39 MICHAEL KORS KORS
Sold
40 Motorola Solutions, Inc. MSI
Sold 41 POST HOLDINGS INC POST
Sold
42 Google Inc. GOOG
Sold 43 Eagle Materials Inc. EXP
Sold
44 Pentair, Inc. PNR
Sold 45 Dollar General Corporation DG
Sold
46 AMERICAN RLTY ARCT
Sold 47 ROCKWELL COLLINS COL
Sold
48 Liberty Interactive Rights LVNAR
Sold
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Pennant Capital is usually the epitome of lower turnover and often has little portfolio activity on a quarter over quarter basis. However, this time around Pennant was quite active for the first time in a while. The most notable transaction in their portfolio was almost doubling their stake in MRC Global (MRC). This is a name you don’t really see any other prominent hedge funds owning, so it seems to be somewhat of a contrarian pick. Pennant is the company’s second largest institutional shareholder. MRC is a holding company, formerly known as McJunkin Red Man Holding Company. They distribute pipes, valves, and fittings as well as various services to the energy industry. The company has a market cap of $3.25 billion
Pennant started a stake in Cognizant Technology Solutions (CTSH) in the third quarter and continued to accumulate shares in the fourth quarter. In fact, they came close to doubling their position and it’s now in their top twenty holdings. Alan Fournier’s hedge fund firm also made a new purchase of American International Group (AIG) shares as the government finally exited its ownership
Key Takeaways
New Posit ions: American International Group (AIG) Owens Corning (OC) Mattress Firm (MFRM) PBF Energy (PBF) Sold Out: Amgen (AMGN) Old Republic (ORI) Eli Lilly (LLY) Calls Google (GOOG) Coca Cola Enterprises (CCE)
stake after bailing the company out during the financial crisis.
Pennant also added 47% to their small position in Vivus (VVUS) that they originally started in the third quarter. This position is most likely sized small to reflect the risk/reward in shares. Vivus is a pharmaceutical company that had Qsymia (a new weight loss drug) approved by the FDA. The stock soared when this happened, but then plummeted back down once initial prescription data was released. With a large portion of the American population considered overweight or obese, there is certainly a large opportunity for the drug to gain traction. Some investors feel Vivus would perform better under the wing of a larger pharmaceutical company. The risks involved are patent risk, possibility that Doctors could prescribe alternative generics, and the fact that Vivus is really just a one-drug company so it’s either a home run or go home. Vivus is spending cash and lacks a true big pharma marketing partner for the drug as well. John Burbank’s Passport Capital also holds a position in VVUS (and was buying again in the fourth quarter as well). It’s currently a much bigger position for him though as it’s his fourth largest US long.
View Pennant Capital’s Updated Portfolio on the Next Page
Q4 2012 www.hedgefundwisdom.com
Pennant Capital Alan Fournier
Pursues a long/short equity strategy
Before founding Pennant in 2001, he was responsible for the global equity
portfolio for David Tepper’s Appaloosa Management
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Fourth Quarter 2012 Portfolio: Pennant Capital
Q4 2012 www.hedgefundwisdom.com
Next: Investment Thesis Summaries
Rank Company Name Ticker Put/Call % of Portfolio Activity
Value x $1000 # of Shares
1 DaVita, Inc. DVA
6.31% Cut -3% $302,186 2,733,972 2 TransDigm Group TDG
6.27% Cut -3% $300,225 2,201,710
3 Terex Corp. TEX
5.78% Unchanged $276,832 9,848,172 4 NVR Inc. NVR
4.98% Cut -3% $238,558 259,302
5 WellPoint Inc. WLP
4.06% Cut -3% $194,292 3,189,292 6 MRC GLOBAL INC. MRC
4.06% Added 85% $194,320 6,994,971
7 WABCO Holdings Inc. WBC
4.02% Unchanged $192,687 2,955,771 8 HuntingtonIngallsIndustries HII
4.00% Unchanged $191,410 4,416,467
9 Priceline.com Incorporated PCLN
3.90% Unchanged $186,799 301,100 10 TripAdvisor Inc TRIP
3.90% Unchanged $186,819 4,456,550
11 QUALCOMM Incorporated QCOM
3.74% Cut -12% $179,031 2,894,154 12 Fidelity National Info FIS
3.72% Cut -27% $178,229 5,120,066
13 Sally Beauty Holdings Inc. SBH
3.67% Added 10% $175,828 7,459,817 14 Sensata Technologies ST
3.25% Added 3% $155,687 4,793,304
15 WESCO International Inc. WCC
3.13% Cut -3% $149,986 2,224,324 16 Dollar General Corporation DG
3.10% Cut -9% $148,619 3,370,816
17 Cognizant Technology CTSH
2.91% Added 80% $139,414 1,886,977 18 Union Pacific Corporation UNP
2.83% Cut -16% $135,685 1,079,263
19 Citigroup, Inc. C
2.79% Added 2% $133,492 3,374,422 20 AmericanInternationalGroup AIG
2.69% New $128,741 3,647,048
21 Apple Inc. AAPL
2.36% Cut -29% $113,063 212,455 22 Range Resources Corp RRC
2.29% Unchanged $109,621 1,744,716
23 PHH CORP PHH
2.21% Cut -9% $105,673 4,644,950 24 Family Dollar Stores Inc. FDO
1.82% Cut -38% $87,163 1,374,597
25 Unitedhealth Group, Inc. UNH
1.78% Unchanged $85,446 1,575,331 26 Owens Corning OC
1.36% New $65,265 1,764,400
27 MATTRESS FIRM MFRM
1.04% New $50,032 2,039,630 28 Pfizer Inc. PFE
1.00% Cut -32% $47,816 1,906,574
29 Middleby Corp. MIDD
0.92% Unchanged $43,952 342,809 30 Universal Stainless & Alloy USAP
0.81% Unchanged $38,707 1,052,668
31 AEROFLEX HOLDING ARX
0.69% Added 34% $32,818 4,688,293 32 Valero Energy Corp. VLO
0.69% Added 10% $32,926 965,000
33 Fluor Corporation FLR
0.63% Added 2% $29,957 510,000 34 FORUM ENERGY TECH FET
0.56% Added 17% $26,869 1,085,611
35 Foster Wheeler AG FWLT
0.49% Added 5% $23,226 955,000 36 Canadian Natural Resources CNQ
0.48% Added 12% $22,952 795,000
37 Quest Diagnostics Inc. DGX
0.45% Cut -1% $21,693 372,290 38 Petroleo Brasileiro PBR-A
0.39% Cut -14% $18,538 960,000
39 Broadcom Corp. BRCM
0.38% Cut -22% $18,099 545,000 40 PBF ENERGY INC PBF
0.33% New $15,687 540,000
41 Ford Motor Co. F
0.14% Cut -40% $6,475 500,000 42 VIVUS Inc. VVUS
0.07% Added 47% $3,355 250,000
43 Old Republic International ORI
Sold 44 Eli Lilly & Co. LLY CALL
Sold
45 Coca-Cola Enterprises Inc. CCE
Sold 46 Google Inc. GOOG
Sold
74 Q4 2012 www.hedgefundwisdom.com
Investment Thesis Summaries & Equity Analysis
Overview
These summaries examine why a hedge fund was buying a specific stock and what their potential investment thesis could be. Written by hedge fund analysts, this section highlights stocks that saw notable hedge fund buying in the quarter.
When presenting an investment idea to a fund manager, an analyst outlines numerous aspects of a thesis.
This section aims to briefly summarize the following bullet points: - Company background - The business model & current situation - The investment thesis - The bull case versus the bear case - Market valuation - Potential catalysts (if any) - Hedge fund activity in the stock
This quarter’s write-ups include:
1. Investment Thesis Summary of Capital One Financial (COF): Disappointing Q4 results may present
a buying opportunity, though low interest rates, consumer deleveraging, and increasing regulatory oversight may continue to pressure results and constrain growth.
2. Long Versus Short Analysis of Herbalife (HLF): Battleground consumer products company with hedge fund heavyweights on both sides wagering large sums of money.
3. Investment Thesis Summary of Spirit AeroSystems (SPR): Mis-managed and poorly positioned aero-structures manufacturer seen as a ‘cheap’ bet on the commercial aircraft up-cycle.
Next: Investment Thesis on Capital One Financial (COF)
75 Q4 2012 www.hedgefundwisdom.com
Capital One Financial (COF)
Investment Thesis Summary
Overview
Disappointing fourth quarter results may present a buying opportunity, though low interest rates, consumer deleveraging, and increasing regulatory oversight may continue to pressure results and constrain growth.
Hedge Fund Activity
Lone Pine Capital and Third Point started new positions in Capital One (COF) with 4.4 million and 900,000 shares respectively. Soros Fund doubled their position to 1.3 million shares and Viking Global increased its position in COF by 35%.
Company Background (Continued)
Company Background
COF is a $300 billion in assets and $20 billion in sales financial institution based in McLean, VA. It is ranked the 11th largest financial holding company based on assets and is focused on consumer lending (primarily credit cards and auto loans).
COF was founded in 1988 by Richard Fairbank, who still runs the company today. The founder brought a high degree of technology and analytics to the lending business, and pioneered the mass marketing of credit cards. The company developed an analytical competitive advantage on asset gathering but lacked a stable funding base, and in the mid-2000s all the growth was in mortgages, so eventually it got into retail banking.
It first bought Hibernia in 2005 to establish a southern franchise, and in 2006 it bought North Fork on the east coast. In 2008, it bought Chevy Chase Bank, and in 2012 it closed the acquisition of ING Direct and the purchase of HSBC’s US cards business. Unfortunately, the acquisition of North Fork brought along the GreenPoint mortgage platform, which created significant problems for COF and eventually was shut down.
76 Q4 2012 www.hedgefundwisdom.com
Company Background (Continued)
In the early 2000s, COF was considered a high-growth specialty franchise with a competitive advantage,
and was growing rapidly. As a result, it commanded a premium multiple. Since then, along with most financial institutions, its multiple has compressed substantially. The reasons being threefold primarily:
! Investors have become more skeptical about the risks of bank franchises and the opacity of their results
! Continued consumer deleveraging means slow asset growth, or even declining balances in the short term
! Increasing government regulation following the financial crisis and an effort to protect the consumer spell slower growth and lower margins over the longer term
COF was less than half its current size in terms of sales in the early 2000s, but its EPS grew quickly from $4 to almost $7. After the mid-2000s, when it started buying retail-banking franchises, its EPS peaked at almost $8 in 2006 but hasn’t quite recovered since. In 2008, it reported a loss, and in 2009 it was only slightly profitable, due to large writedowns primarily related to mortgage exposures. Between 2010-2012, its EPS has been in the $6-7 range, comparable to pre-2005 levels.
Nevertheless, the stock was trading near $90 back in 2005-2006, whereas now it trades in the mid-$50s. It’s
interesting to note that some financial institutions have actually rebounded to almost peak prices, e.g., JPMorgan and American Express are trading back to their 2006-2007 levels.
Current Situation & Bulls vs Bears
Investment Thesis Summary Capital One (COF)
77
As the employment picture in the US gradually improves, credit card charge-offs will continue to decline, and card companies’ earnings power will eventually shine through.
One way investors look at financial institutions is to calculate the pre-tax pre-provision earnings, and then calculate an earnings power based on normalized loan loss provisions. During crises, credit losses are much higher and banks can earn very little or even lose money, but depending on the trajectory of these losses and whether they might need additional capital in the future, those can be good times to buy at depressed valuations.
Based on the low end of sell-side earnings estimates, COF is expected to have an EPS of $5.79 for 2013 and $6.29 for 2014, a 9% year-over-year growth rate, and the stock is trading at 9.3x forward earnings. Using the mid-point of sell-side analysts’ estimates of $6.45 for 2013 and $6.83 for 2014, COF trades at 8.4x forward earnings but the growth is also lower at 6%. The big question is, what is a normalized charge-off rate, and what does the going-forward growth profile of the business look like?
Buyers expect credit quality to improve sooner based on positive employment reports; sellers avoid the stock because of weak growth opportunities and increased uncertainty. 2012 and 2013 continue to be transition years for COF with continued portfolio runoffs, substantial acquisitions – making recent trends less predictive of future performance – and results pressured by purchase accounting adjustments, amortizations and merger-related expenses. On the other hand, COF’s restructuring could translate into much higher profitability a few years out.
Q4 2012 www.hedgefundwisdom.com
Investment Thesis Summary
Next: Analysis of Herbalife (HLF)
Capital One (COF)
In the fourth quarter of 2012, COF traded in the $55-61 range, then it trended higher to almost $63 in early January, and it is currently below the low-point in Q4 at $54. Since October, COF is down 5.2%, whereas Discover (DFS) is down 1.5%, American Express (AXP) is up 8.5%, the KBW Bank Index (BKX) is up 11.2%, and the S&P 500 is up 5.5%. The reason for COF’s underperformance was the disappointing fourth quarter results and subsequent sell-side downgrades.
On January 18th, the stock dropped from $62 to $57, in reaction to its earnings release and call after the close on January 17. Reported EPS came in at $1.41 compared to consensus of $1.58 and a “whisper” number closer to $1.65 due to a weaker than expected spread income and higher operating expenses at the bank. COF’s margin was weak as it built up cash to redeem $3.6 billion of trust preferred securities. Results in cards declined over the prior quarter, more accurately reflecting the pressures of recent changes in card fees.
Perhaps more importantly though, management gave disappointing top-line guidance, saying that the fourth quarter was representative of what investors should expect for 2013, even though Q4 is a seasonally weak quarter. The company faces the industry-wide issue of softening consumer demand for credit, as well as a persistent very-low interest rate environment.
Additionally, Capital One just agreed to sell its $7 billion Best Buy private label portfolio to Citigroup at approximately book value. The transaction is expected to close in the third quarter of 2013. This portfolio was originally part of the HSBC deal from 2012. Some sell-side analysts are disappointed that COF has lost yet another private label relationship.
Current Situation Bulls vs. Bears
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Q4 2012 www.hedgefundwisdom.com
Investment Thesis Summary
Hedge Fund Battleground: The Short Side
Herbalife (HLF)
Bill Ackman’s Pershing Square in December gave a presentation on why he has a short position in Herbalife (HLF). He has reportedly shorted around 20 million shares, or more than half the total short interest. This presentation caused HLF to plummet and prompted the following hedge fund buying:
Carl Icahn bought 14 million shares (13% of the company). Third Point established a new position in
the stock valued at around $120 million (though CNBC is reporting that Third Point recently sold a portion of his position recently). Ken Heebner’s Capital Growth Management purchased almost 1 million additional shares. Tiger Consumer increased its position by more than 50%. Visium bought more than 2 million shares and Lone Pine Capital bought calls on HLF.
Hedge Fund Activity
HLF is a multi-level marketing (MLM) company that sells nutritional, weight loss, and other health and beauty products through 2.5 million independent distributors in 88 countries.
In MLM programs, a company sells its products through an independent (instead of a captive) sales force. These independent distributors earn commissions on products sold, and they are recruited through conferences or by other distributors. In addition to marketing the company’s products, distributors also market the company itself.
Growth comes from a distributor selling more product, or from a distributor adding other distributors to the system. In order to incentivize this growth, the company pays the recruiter a commission based on the ‘downline’ distributor’s sales.
MLM programs often require that distributors make an investment in the company, e.g., by placing an initial product order and maintaining a certain commitment to make recurring purchases. If downline distributors end up not selling the product, they lose money, which ends up in top-level distributors’ pockets, making MLM programs potential pyramid schemes. However, there are many MLM programs that are perfectly legal.
HLF was founded by Mark Hughes in 1980, went public in 1986, and was taken private by JH Whitney and Golden Gate in 2002 for $700 million. In 2003, the president of Walt Disney International, Michael Johnson, became – and currently is – HLF’s CEO, in preparation of going public in 2004.
Since it IPO’d in late 2004, HLF has grown from $1.2bn to $3.9bn in sales, its gross margin has been stable at 80%, but operating margin has improved from 9% to 16%. As a result, EPS has increased from less than $0.50 to $4. Over the same period, its stock price has grown from $7 (the split adjusted IPO price) to a high of $72 in April 2012. After a low of $26 in late December 2012 it has partially recovered to $39.
Company Background
79
rather than the sale of goods and services to consumers, and 2) pyramid schemes are illegal because they must eventually collapse.
HLF management quickly reacted to
Ackman’s allegations with a press release that hinted that Pershing Square was buying puts that would expire in the following days and stood to make a hefty profit with the presentation. By Friday, the company had scheduled an analyst meeting for January 7th to respond in more detail to Ackman. In its presentation, HLF countered that it spends on manufacturing, infrastructure, and R&D at least as much as its peers; and it challenged a number of assertions in the Pershing Square presentation (e.g., international distribution, price competitiveness, and the number of retail customers).
Ackman has made some of his resources
available publicly: - Ackman’s presentation on his short
- Ackman’s follow up: questions for HLF
- The website Ackman setup:
www.factsaboutherbalife.com
Q4 2012 www.hedgefundwisdom.com
Investment Thesis Summary
Hedge Fund Battleground: The Long Side
Herbalife (HLF)
HLF is a battleground stock with big investors on both side of the fence. On the short side, Ackman says that the company is a pyramid scheme. On the other side of the argument is Carl Icahn, Dan Loeb and more.
On December 19th, Ackman announced that
he would be discussing HLF at an Ira Sohn conference. The next day, he presented analysis concluding that HLF is a pyramid scheme because distributors’ earnings come predominantly from the recruitment of other distributors. He said that since the company was founded, it has cost distributors $3.5 billion, which has been re-distributed to the top of the pyramid. On December 18th, HLF’s stock was at $42.50, and its precipitous fall stopped at $26 on December 24th.
Ackman questions HLF’s business model
based on the following key point: he finds it inconceivable that a company with a more limited product offering, insignificant R&D and marketing expenses, and without retail distribution, can be outselling three of its major competitors combined, since its products are significantly more expensive and not meaningfully differentiated.
Therefore, the only way to sell all this
product would be by bundling it along with a business opportunity. The idea behind the short thesis is that if HLF’s product isn’t all that great and couldn’t be sold otherwise, relying on the business opportunity means that the real money is made through recruiting, making it a de facto pyramid scheme.
From the Pershing Square presentation,
according to the FTC: 1) an organization is deemed to be a pyramid scheme if the participants obtain their monetary benefits primarily from recruitment
Hedge Fund Battleground: The Short Side
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During the sell-off following Ackman’s presentation, a number of investors jumped in and bought the stock: Third Point’s View: In early January, Third Point disclosed an 8% position in HLF. Dan Loeb argued that price markups in “commodity” products exist where there is a community and a brand identity, which is the case with HLF. Also, there are very few complaints filed with the FTC against HLF, and it seems highly unlikely that the FTC has allowed a pyramid scheme to go on for more than 30 years now. Third Point outlined their thesis on HLF in their fourth quarter letter, writing: “Based on its strong financial performance, Herbalife is a classic ‘compounder’ – a well-managed company that sustains consistent top-line growth, has a leading market position, and steadily increases margins, earnings per share and free cash flow while demonstrating shareholder-friendly behavior. Management has a history of returning 100% of net income to shareholders in the form of dividends and buybacks. If management were to deploy its existing $950 million buyback authorization in the $40-45 range (only taking leverage to approximately 1.5x), we estimate that run-rate EPS for 2013 could be $5.50-5.70 using the reduced share count.” Third Point believes that HLF could trade up to $55-68 per share using a 10-12x earnings multiple. Do note that CNBC is reporting that Third Point has recently sold some of its HLF position (undoubtedly locking in some profits after they purchased during the Ackman presentation carnage). Carl Icahn’s View: On Friday, February 15th, HLF was up more than 25% higher in pre-market trading, following Carl Icahn’s SEC filing that showed he had bought a 13% stake in the company. Nevertheless, the stock ended only 1% higher for the day. In his activist 13D filing, Icahn said that he “intend(s) to have discussions with management regarding the business and strategic alternatives to enhance shareholdervalue, such as a recapitalization or a going-private transaction.” Bronte Capital’s View: In mid-January, Bronte Capital posted a blog entry reflecting on a recent visit to an HLF club. It concluded that HLF is not a commodity product and that Ackman has misunderstood the whole value proposition. Presumably, HLF provides a very important and differentiating support community required to sell these weight-loss products. Bronte Capital concluded that it’s a product/service that indeed works.
Hedge Fund Battleground: The Long Side
Investment Thesis Summary
Summary
Herbalife (HLF)
Q4 2012 www.hedgefundwisdom.com
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Q4 2012 www.hedgefundwisdom.com
Investment Thesis Summary
Next: Spirit AeroSystems (SPR) Investment Thesis
Herbalife (HLF)
Hedge Fund Battleground Stock
Summary
The short thesis is that HLF is a pyramid scheme based on an overpriced commodity and a mis-represented business opportunity. The long thesis is that
HLF is a well-managed company that has been growing top line at a steady pace and EPS at an accelerated rate based on operating leverage and share buybacks. Buyers took advantage of temporary pressure on the stock at the end of the year,
following Bill Ackman’s presentation. Both sides have wagered large sums of money, making this situation particularly interesting.
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Spirit AeroSystems (SPR)
Spirit AeroSystems (SPR) is the largest manufacturer of fuselages and other aero-structures. It traces its history to Stearman Aircraft in the 1920s, which was acquired by Boeing in the late 1920s. In 2005, it was acquired by Onex, and in late 2006 it went public. Initially, the only customer was Boeing, but with the 2006 acquisition of BAE Systems’ aero-structures business in Europe, it added Airbus and expanded geographically. Customer concentration continues to be an issue with its two major customers accounting for >95% of sales: Boeing 85% and Airbus >10%.
SPR’s business requires a significant upfront investment to design and develop new products, and then it recoups that money once it starts shipping the product. It uses the contract method of accounting, which means that total revenue and total cost are estimated for a contract. Then, based on the percentage-of-completion method, revenue and expenses are recognized based on the units shipped in a period.
Under contract accounting, the revenues on the contracted units are easier to estimate, but costs require assumptions on a learning curve and supply chain efficiencies as volumes ramp up. The cost of manufacturing the first unit is very different than the cost to manufacture the 100th unit.
The company has to reassess its assumptions on a quarterly basis. If the assumptions prove correct, then shipments are booked at the predicted margin and earnings are very consistent. However, if assumptions are wrong, the company needs to make cumulative catch-up adjustments. If the contracted business ends up being more profitable than originally estimated, then the company will book a gain on already-delivered units, and adjust the forward margin higher. The opposite happens if costs end up higher than expected.
In the case that the costs already included in in-process inventory and the future costs required to complete a contract exceed the expected revenue for the contract, the company takes a charge to cost of goods sold and reduces the inventory to its realizable value, meaning that future booked revenues flow through at a zero margin. As sales from zero-margin contracts continue to increase, the company’s margins get pressured.
SPR has developed many programs and extrapolates in part from past experience in order to figure out the correct assumptions. Nevertheless, after it went public it started expanding into new products and working with new customers, making its past experiences unreliable predictors. The result has been a number of lump-sum charges that have made its earnings very volatile.
Company Background
Scopia doubled its position to almost 17 million shares and $300 million in market value, making it its second largest position. Citadel doubled its position to 3.4 million shares. Canyon made it its 10th largest position, now at almost 1 million shares.
Hedge Fund Activity
Q4 2012 www.hedgefundwisdom.com
Investment Thesis Summary
Current Situation & Bulls vs. Bears
83
On October 25th, SPR announced $590 million in pretax charges related to design changes and schedule delays that were not factored in to the company’s original cost estimates for the development of the Boeing 787, G650 wing, G650 engine nacelle, and G280 wing programs.
Management blamed the higher-than-anticipated complexity of the company’s diversification and
growth strategy: it added manufacturing locations and started on many new development programs within a short timeframe, creating the perfect storm for the following years.
As a result of increasing supply chain, factory, and labor costs, SPR expects to incur a loss on many of
these programs, which were previously accounted for at zero margin. The reason that SPR continues to be committed to these contracts is that it has already incurred high costs and they will be net-cashflow positive to the company.
On November 1st, it issued financial guidance for 2013 of $5.8-6.0 billion sales (>10% growth year-
over-year) and $1.90-2.10 EPS, and the business should be cashflow breakeven.
Investors tend to get disappointed and sell off SPR, but then the company looks like a “cheap” bet on the aircraft refresh cycle and projected growth (both in units and in content in the new aircraft). The longer-term industry fundamentals are a great tailwind, but SPR has consistently disappointed investors with its performance, and structurally it seems to be poorly positioned. Nevertheless, following such a large catch-up adjustment, perhaps there is the potential for upwards adjustments going forward. The idea being that, if a management team takes such a large charge, it is better off to be very conservative in its estimates in order to avoid any more charges in the future.
Bulls vs. Bears
Spirit AeroSystems (SPR)
Investment Thesis Summary
Q4 2012 www.hedgefundwisdom.com
This concludes the Q4 2012 edition of Hedge Fund Wisdom
Current Situation
84
Q4 2012 www.hedgefundwisdom.com February 21, 2013
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